Argentina: inflation expected to exceed 3.5% in January; economists anticipate another year of sharp price increases

RIO DE JANEIRO, BRAZIL – The 50.9% year-on-year inflation rate in 2021 has added to concerns about economic variables, and the outlook for 2022 does not appear to offer any relief for the wallet. The correction of tariffs, which according to the government’s determinations at the end of December are around 20%, and the acceleration of the official exchange rate, which began to rise in the first days of the year, would push up the general price level, at least in the first quarter.

In this context, the forecasts of economists are not encouraging. The experts interviewed by LA NACION expect inflation to exceed 3.5% in January. In some cases, they even expect it to reach 3.8%, the value with which December ended. These are very high values for any economy trying to have a healthy coexistence with the price trend.

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If the projections are confirmed, this will consolidate a very high level of inflation for several months. In the last 12 months, the index has been above 3 points 10 times.

Ecolatina, a consulting firm, expects inflation in January to be around 3.5% based on the trend in the first 15 days of the month. “Last year, it was 50.9% with frozen tariffs, maximum price programs, and a very lagged exchange rate. For 2022, we see that the evolution of the different groups will be similar, including wages, which could exceed prices on average for the year, but will have a similar evolution,” explained Federico Moll, economist and coordinator of forecasts of the consulting firm.

Ricardo Delgado of the Analytica consultancy expects inflation in January to repeat December’s figure: 3.8%. “Smaller increases in seasonal prices, such as fruits and vegetables, will be offset by increases in Internet, mobile phone and tolls, among others,” he said.

Pablo Repetto of consulting firm GRA also predicted a change in the range of 3.8% for January. “Considering the announced increases and the price movements that have already occurred, as well as the seasonality, the price increase could be even higher,” he warned.

On the other hand, Lorenzo Sigaut Gravina of consultancy Equilibra was a bit more pessimistic: “Our estimate of the national CPI change for January 2022 is around 4%.”

Lucio Garay Méndez of consulting firm EcoGo also estimates monthly inflation above 3.5%, more likely 4%. “In the second week, the main component, food, and beverages increased sharply. The economist explained that there were significant increases in bakery products and fresh produce,” the economist explained. In addition, he pointed to significant increases in areas such as healthcare, where the increase in prepayments and pharmaceuticals had a strong impact.

“The macroeconomic context continues to accumulate inconsistencies, such as the strong monetary support for the Treasury, the acceleration of the daily devaluation due to a delayed dollar in 2021, among other issues, and this translates into one of the symptoms that the economy has: inflation, which is at 50% and of which there is no perspective that indicates a slowdown,” Garay Méndez added.

According to the preliminary report of the LCG, the second week of January ended with an inflation rate of 0.9% in food and beverages due to fruits and vegetables. Compared to the second week of December, inflation remains around 3%, and if it accelerates in the coming weeks, it will return to the previous month’s level.

For the private sector, however, the expectation is even worse. At the end of December, analysts expected retail inflation to reach 54.8% in 2022, 2.7 percentage points higher than the previous month, according to the Relevamiento de Expectativas de Mercado (REM) of the Central Bank (BCRA). Likewise, they increased the inflation forecast for 2023 to 43.4%, up 2.6 points from the November survey, and gave an inflation forecast of 35% for 2024.

The general context is what rings the alarm bells most about the expected inflation numbers for this year. This week, the National Institute of Statistics and Census (INDEC) will release the monthly assessment of the total and basic food baskets for December, data used to measure the extent of poverty and indigence in Argentina. Last November, a typical family needed ARS 73,918 (US$710) to escape poverty. The minimum living and mobility wage, adjusted in February, remains at ARS 31,938. Inflation last December raised the ceiling to avoid falling into these categories.

Although last week the government presented the new list of 1,321 products for the “Cared Prices” program to curb inflation by controlling the prices of mass consumer goods, according to Ecolatina, these products explain only 15% of the general price level.

“The multiple factors fueling inflation, especially in a context of highly distorted relative prices, mean that this type of program is not sufficient to contain high inertia. Despite the controls, the core consumer price index (which excludes seasonal products and services) has been above 3% per month for 15 consecutive months,” the consultancy warned in a report.

THE PRODUCTS THAT WILL STRAIN THE POCKET THE MOST IN 2021

According to the Indec data, the product within the food and beverage category that has increased the most in 2021 is ordinary wine, which has increased 117% since December 2020. While a liter cost ARS 75.18 at the end of last year, by the last month of 2021, it was worth ARS 163.25.

“In 2021, export wine sales increased both in volume and price. In other words, more production went abroad, and the international price went up. It means that the local price for the same product should be the same so that there are incentives to supply the domestic market. This, in turn, can harm the rest of the country’s wine range,” explains Matias de Luca, economist at the consulting firm LCG.

For Aldo Abram, economist at Fundación Libertad y Progreso, on the other hand, the price increase could be explained by a recovery in sales compared to 2020. “Within the food category, wines are not essential, and when people were impoverished due to the quarantine and the pandemic in 2020, demand for them may have decreased, and prices did not increase as much as they should have during that time,” he said. “This year, with the economic recovery, people had more income and probably more purchasing power, which may have restored the value of these products,” Abram said.

The second product that has increased the most in 2021 is the round tomato, where inflation was 111% year-over-year. Although price increases in July (51%) and October (21.7%) were due to seasonal factors, price declines in November and December (-33% and -18%, respectively) were not enough to offset the increases, and it was one of the products that increased prices the most in 2021.

Within the dairy category, the price increase of cheese was significant, with Sardinian cheese showing the highest increase of 76% in 2021. Increases above the general inflation rate were also seen in sheep’s milk cheese, with a 69% increase, and fresh cheese, with a 66% increase.

“In 2020, dairy inflation was well below the general level at 23.8%, partly due to the pandemic effect but also to the freezing of prices for mass consumption, mainly thanks to the maximum price program. In mid-2021, the program was dismantled, and prices increased, bringing the annual inflation rate to 56.3%. In recent months, the new freeze meant a small slowdown, but it could not compensate for what had happened in the previous months,” analyzed Agostina Myronec, economist at Ecolatina.

The third place on the podium is occupied by ground coffee, which increased by 72% in 2021. It is followed by fresh hake fillet with a 71% increase and whole milk powder with a 70% price increase. These products increased by 20% above the general level.

It is worth noting that the increase in meat consumption was one of the major problems in 2021, although it was not included in the “Top 5″. Since May, the government has started restricting meat exports to curb the price increase in the domestic market. Initially, a complete ban was set, except for quotas allocated to the country in other destinations and an export quota of 50% of the volumes sold abroad in 2020. Later, the Trade Secretariat, first under Paula Español and then under Roberto Feletti, gradually relaxed the restrictions, especially for cuts of beef categories D and E, mainly destined for China, Argentina’s main export market.

The clamp did not achieve its goal, and meat prices not only did not decrease but, on the contrary, increased significantly in 2021. Common ground beef increased by 69%, rump and roast by 67%, pork shoulder by 66%, and shoulder by 65%, all results above the general inflation rate. Meat saw an overall increase of 61.6%, explained by an increase of about 5% in the first months of the year and an acceleration in November and December of 6.3% and 9.1%, respectively.

“Prices and volumes cannot be controlled at the same time. Imposing an export ban means a loss of livestock, production, and sales, which translates into lower sales volume and higher price,” de Luca argued.

For Myronec, the seasonal component of the end of the year and the upcoming holidays affected demand and, consequently, the price. “Meat is one of the categories that have the greatest impact on food and beverages, as it represents almost 9% of the total basket of staple foods,” the economist said.

“It is worth remembering that in 2020, the relative prices of goods and services were distorted by the pandemic. Part of the trend in 2021 could be due to a price correction compared to the previous year. The same is true for the sharp increase in clothing, restaurants, and entertainment in general, as these values could not increase in 2020 due to the quarantine and the slowdown in activity,” Abram concluded.

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