Argentina on path to highest annual inflation rate in decades

Buenos Aires, Aug 16 (EFE).- A sharp surge in consumer prices over the past several weeks has put Argentina on a path toward a year-end annual inflation rate of 90 percent or higher, a level not seen in more than three decades.

South America’s second-largest economy has regularly had double-digit annual inflation rates since 2002, but amid global price increases triggered by the war in Ukraine and unresolved imbalances in the local economy, Argentine month-to-month consumer prices have climbed by no less than 3.9 percent since the start of the year.

Official figures from July, however, caused alarm bells to ring. Released last Thursday, they indicated that consumer prices climbed 7.4 percent relative to June – the largest monthly increase since 2002 – and 71 percent on an annual basis.

Inflation in the first seven months of 2022, meanwhile, soared by 46.2 percent compared to the January-July period of last year.

That sharp acceleration in consumer prices has occurred amid political turmoil and frequent Cabinet shuffles, with Sergio Massa taking over early this month as Argentina’s third economy minister in a span of just 30 days.

The Argentine peso’s value has plummeted to a record low against the dollar on the black market, in turn causing prices in the real economy to soar.

Prices climbed in July across a number of different goods and services, but a 6 percent rise in the average cost of food was particularly worrying.

And the price of some basic items such as onions skyrocketed last month, up 57.9 percent relative to June.

Private economists surveyed monthly by Argentina’s Central Bank had forecast that the country’s 2022 annual inflation rate would come in at 55 percent, up from 50.9 percent in 2021.

But they now are projecting a rate of 90.2 percent, far exceeding the 52-62 percent range that had been projected by the Argentine government and the International Monetary Fund.

Other experts are even forecasting a year-end annual inflation rate of more than 100 percent.

“We’ll surely have a rate of close to 110 percent, the highest since the hyperinflation of 1989-1990,” Leonardo Piazza, director of LP Consulting, said.

According to that expert, the current level of public spending, tariff adjustments and inflationary inertia, among other factors, will cause month-to-month inflation spikes of between 6.5 percent and 7 percent for the rest of the year.

“If the drop in the Central Bank’s (foreign) reserves continues and the government cannot slow down the growth in public spending, this scenario of annual inflation growth is quite feasible,” Piazza said.

The new economy minister has admitted that the forecasts of private consulting firms indicate that August will be another month of sharp price hikes. But he predicted that the curve will start to move downward in September.

The measures announced thus far by Massa are aimed at bringing down spending, reducing money printing and bolstering the Central Bank’s reserves.

But many analysts say a more aggressive plan is needed to put the brakes on inflation.

“Without an anti-inflationary plan, the outlook for this year is an increase in prices of around 100 percent,” said Victor Beker, director of the University of Belgrano’s Center for New Economy Studies.

The biggest challenge Massa faces is “implementing a coordinated and consistent plan of fiscal, monetary, exchange rate and revenue measures that ensure a drastic drop in inflation,” the economist said.

Gradualism is not a viable option, according to Beker, who said a shock treatment is now necessary to avoid hyperinflation. EFE