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ECONOMY | 14-03-2023 17:04

Inflation in Argentina surpasses 100% as economic recession looms

Consumer prices rose 102.5% in February from a year prior, the highest since late 1991 when the economy was cooling off from 3,000 percent hyperinflation.

Argentina’s annual inflation surpassed 100 percent last month, one of the world’s fastest rates, putting extra pressure on an economy that’s expected to fall into recession ahead of presidential elections this year. 

Consumer prices rose 102.5 percent in February from a year prior, the highest since late 1991 when the economy was cooling off from 3,000 percent hyperinflation. Prices rose 6.6 percent on the month, more than all estimates in a Bloomberg survey of analysts that had a six percent median forecast, according to government data published Tuesday.

Food prices, the largest category in Argentina’s inflation index, spiked nearly 10 percent from a month prior, fuelling the headline increase. In particular, the cost of beef, a staple of Argentines’ diet and national pride, soared as much as 35 percent in the greater Buenos Aires metropolitan area last month, data showed.

“Lax fiscal and monetary policies are largely behind the rise in Argentine inflation above 100 percent, despite attempts to tame it with price controls and an unrealistically strong currency,” said Adriana Dupita, Bloomberg's economist for Brazil and Argentina.

Inflation is taking centre stage in this year’s presidential elections, challenging both of the top two political parties to entice voters after they failed to stabilise the crisis-prone economy. But at the same time, polls show inflation is voters’ top concern, overwhelming any positive impact from recent economic growth or lower unemployment in the past two years.

President Alberto Fernández and his divided coalition are struggling to unite behind a clear strategy or candidate. But the coalition of former president Mauricio Macri, whose 2015-2019 government saw the inflation rate more than double to 57 percent, hasn’t united behind a single candidate either. Outsider candidate Javier Milei is gaining momentum in part due to his proposal to replace the peso with the US dollar as the national currency.

Beyond politics, inflation is ravaging Argentina, wiping out wage gains in an economy where nearly 40 percent of the population is living in poverty. Neither the business-friendly approach taken by Macri’s administration nor the labyrinth of currency controls and price freezes rolled out under Fernández have managed to bring consumer prices back under control.

Combined with a rapidly worsening crop drought, accelerating inflation is expected to push Argentina deeper into recession. Analysts now see the economy contracting three percent in 2023 after the government had projected two percent growth in its budget. 

 

by Patrick Gillespie, Bloomberg

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