Argentina CPI Review: Prices Freeze led to a slowdown on inflation
Argentina's CPI rose 8.3% in October, a slowdown from the prior 12.1%. Yet, the Yr/Yr CPI surged to 142.7%, the highest since 1991, with Core CPI at 150%. Communication, Household Goods, and Clothing led expenditure increases, surpassing 10% on the month, while Health (6.1%) and Education Services (5.1%) saw lower rises. The monthly CPI deceleration resulted from the government freezing the exchange rate at 350 ARS/USD before the elections, but a post-election devaluation is expected, potentially causing a renewed inflationary shocks. Severe 2023 droughts worsened inflation, prompting new monetary financing. Uncertainty prevails as both presidential candidates lack clear plans, possibly leading to IMF negotiations. Forecasts predict exchange rate devaluation, pushing year-end CPI to 128%. Looking ahead, 2024's outlook hinges on factors such as drought recurrence, BCAR actions, and monetary emissions, awaiting clarity after the new President's inauguration on Dec 10.
Figure 1: Argentina CPI by Groups (m/m, %)
Source: INDEC
The Argentina National Statistics Institute (INDEC) has recently released the Consumer Price Index (CPI) data for October. According to the data, Argentina's CPI witnessed an 8.3% month-on-month increase. Despite the elevated inflation levels for the month, there is a noticeable deceleration compared to the preceding months, where the CPI reached 12.1%. Consequently, the year-on-year (Yr/Yr) CPI has surged to 142.7%, marking the highest measure since 1991. The Core CPI surpasses this, registering an annual inflation rate of 150%.
Figure 2: Argentina CPI (%, Yr/Yr)
Source: INDEC
Examining specific expenditure groups, Communication, Household Goods, and Clothing experienced the most significant increases, surpassing the 10% threshold on the month. On the other hand, Health (+6.1%) and Education Services (+5.1%) saw the lowest rises.
The deceleration in monthly CPI can be attributed to the government's decision to freeze the official exchange rate at 350 ARS/USD between the first and second rounds of the elections. However, it is anticipated that a fresh round of devaluation and potential inflationary shocks will follow after the second round concludes.
The pronounced inflation acceleration in 2023 was exacerbated by severe droughts in rural areas, reducing FX reserves to slow the exchange rate decline and increasing the fiscal deficit. This, in turn, necessitated new monetary financing from the Central Bank.
Currently, uncertainty looms over Argentina. Both candidates, Javier Milea and Sergio Massa, have yet to present a satisfactory plan to address the country's high inflation levels. It is increasingly likely that a new round of negotiations with the International Monetary Fund (IMF) will be required.
Forecasts indicate that the government will devalue the official exchange rate in the coming months, leading to an acceleration of CPI numbers, potentially approaching the 12% per month observed in previous months. Our year-end CPI projection now stands at 128%. Looking ahead to 2024, several factors will come into play. While the likelihood of a repeat of the 2023 droughts is low, the inertia from the previous year will persist. The actions of the Central Bank of Argentina (BCAR) and the continuation of monetary financingremain uncertain, with clarity expected once the new President assumes office on Dec 10.