Argentina: prices reportedly increased up to 6.4% in February and annual inflation already exceeds 100%.

Preliminary data for February inflation suggests 2023 will be even more volatile than last year.

The financial result for the year’s first month adds uncertainty for the future evolution of prices.

The government of Alberto Fernández and Sergio Massa started the election year with a sharp increase in public spending during January and, soon after, a pension moratorium law that added a deficit of $278.086 billion (US$1.41 billion) for ANSES in 2023.

With the dismal performance of public finances, inflation targets are unlikely to be met.

Private consulting firms suggest that retail prices increased between 5.5% and 6.4% in February, while INDEC has already confirmed monthly inflation of 6% in the first month of the year.

If this forecast is fulfilled, the year-on-year inflation rate will certainly reach and exceed 100%, a remarkable fact for the current peso and a rise not seen in a currency in Argentina since 1991.

Massa’s program lacks the necessary tools to carry out proper stabilization.

According to C&T Asesores Económicos, inflation would have reached 6.2% monthly in February, up to 105% in the last 12 months.

If the CPI measured by INDEC shows a jump of these magnitudes, the year-on-year inflation level would reach 101.7%.

The consulting firm LCG estimates that prices would have increased even more, up to 6.8% compared to the previous period.

Among other important factors, strong increases in the price of meat (11.3%) and dairy products (8.2%) were observed throughout February.

This scenario would imply year-on-year inflation of 103%, according to the INDEC series.

The consulting firm Ecolatina forecasts monthly inflation of 6.3%, in line with the most common diagnoses, and the interannual variation of prices would reach 101.9%.

Once again, this is the highest figure since October 1991.

The survey of surveys conducted by the consulting firm Orlando J. Ferreres (OJF & Asociados) projects a price increase of 6.4% for February and a year-on-year inflation level of 101.5%.

The Fair Prices program and the deceleration of the official devaluation rate could not put a brake on the rate of price increases.

For former Minister of Economy Domingo Cavallo, the fiscal risk implicit in the January result generates uncertainty about Massa’s program.

“The control of public spending is the only tool the government has available to prevent the inflation rate from jumping above 6% per month. Although it was tempted to do so during December and part of January, I have already explained in previous reports that the government will not be able to delay the official exchange rate further”, explains Cavallo in his personal blog.

Without fiscal adjustment, the government has no alternatives to control inflation.

The position of interest-bearing liabilities has already reached the most dangerous level since the first half of 1989.

Delaying the official exchange rate under these circumstances could trigger an effect similar to the Rodrigazo of 1975.

Amid an election year and with the economy entering into recession, the idea of a fiscal adjustment, with the official exchange rate duly updated to inflation, seems less and less probable.

With information from Derecha Diario