Worrying data behind August inflation rate and projections for September

The 4.2-percent inflation rate reported for August by the INDEC national statistics bureau surprised everyone in Argentina – it was above the projections of the government and private analysts as an uptick from the four percent registered the previous month.

The Central Bank’s REM market expectations survey, which consults leading economists and analysts, estimated the index would be 3.9 percent.

To cool things down, the Economy Ministry conducted an analysis “irrespective of short-term volatility.”
The economic team focused on the “continuity of the deflation process, with the three-month mobile median of the variation of the National CPI which placed it, together with that of the previous month, at the lowest level since February, 2022, with the six-month one the lowest since March, 2023.”

One striking piece of information is the 4.1-percent increase in core inflation, which measures the increase of prices of goods and services excluding seasonal ones and those regulated by the government, such as public services. This is relevant because it is used as a trend of inflationary evolution. In this vein, it was highlighted by the government in previous months, when it was well below the general rate.

For Leo Anzalone, director of the Centro de Estudios Políticos y Económicos (CEPEC), “although policies were applied to reduce import costs [reduction of the PAIS tax] and to ease pressure on the exchange rate [Central Bank intervention], core inflation, which excludes such volatile components as food and energy, did increase.”

He added: “This reflects that the most rigid prices, such as those of goods and services, continue to increase due to structural factors in the economy, such as inflationary momentum and the re-composition of profits by companies.”

Claudio Caprarulo, director of the Analytica consultancy firm, considered that “the worrying piece of information is the slight rise of core inflation by 4.1 percent, which averaged 3.7 percent in the previous three months.”

He continued: “In the meantime, seasonal prices were very favourable, merely +1.5 percent. How will this continue? Difficult to say, very far from the gravitational centre of four percent.”

As for the general trend, Horacio Miguel Arana, economist of the International Bases Foundation, stated that “the monthly four percent cannot be pierced yet because there are still relative prices to adjust. This month there was an obvious impact due to corrections in public service rates and there is still an increase that remains to be seen.”

Arana added that “there is also the matter of printing to buy dollars to strengthen reserves and those of the Central Bank, especially if the harvest is abundant.”

“Although it is controlled printing, it’s still a Central Bank intervention and that hits core inflation to a major extent, which resulted in 4.1 percent, the most worrying thing,” he concluded.

At the LCG consultancy firm, experts estimate that in the ninth month of 2024, new increases of petrol and private health insurance will be calculated, as well as postponed electricity and gas rises, and train tickets in Greater Buenos Aires.

“LCG’s price survey shows an average 2.3-percent inflation in food and beverages in the last four weeks, which displays only a marginal slowdown. In turn, we don’t project a greater contribution from the decrease of the PAIS tax. Specifically, we expect the monthly inflation to be ever closer to four percent for September,” the firm stated in a report.

Anzalone said that “regardless of what happens in the monthly photo, rigidity will continue. The reduction of the PAIS tax could bring a slowdown in the next few months but its impact could be temporary if not accompanied by other more structural measures. The readjustment of public service billing also ought to continue, which adds upward pressure and with the Central Bank’s reserves in the red, it all conspires for the two-percent merger to be an ever-distant dream.”

Economist Lautaro Moschet from the Libertad y Progreso Foundation maintained: “We anticipate a new slowdown in inflation, which we estimate will be slightly above three percent. This reduction is mainly explained by the impact of the drop of the PAIS tax for tradable goods and services, which will help mitigate the effect of increases in regulated prices on the overall CPI.”