A man walks in front of a clothing store in downtown Buenos Aires on January 12, 2022. LUIS ROBAYO (AFP)
Argentina’s economy is not standing. Cumulative inflation in 2022 hit 94.8%, the highest annual increase since hyperinflation in 1991. The CPI rose 5.1% last December, up 0.2 percentage points from November. The data are bad news, behind which there is a consolation prize: the government of Peronist Alberto Fernández had set itself the goal of avoiding at least a three-digit CPI, as was forecast in the middle of last year after the resignation of Economics Minister Martín Guzmán. Since then, his successor, Sergio Massa, has instituted a strict system of price caps, moderated spending and encouraged positive interest rates to neutralize the peso’s collapse against the dollar. Massa promised 60% inflation in 2023, but expectations, which the central bank is measuring among businesspeople and analysts, are closer to a similar number to 2022.
The past year has been a crossroads for Argentina’s economy. The country initially suffered from the effects of the Russian invasion of Ukraine, which sent food and energy prices skyrocketing. Mid-year, local factors complicated what was already complicated: Argentina’s CPI rose 7.4% in July amid the turmoil that caused the resignation of Minister Guzmán, who was responsible for signing the agreement with the IMF to postpone payments in Amount of 45,000 million dollars was responsible. The fratricidal fight between the President and his Vice President Cristina Kirchner prevented a consensual economic policy.
That level in July was the highest for a single month since 2002, when the Corralito crisis sent GDP down 10.9% and April CPI depreciated 10.4% before rising to 0.1 in December % fell. Forecasts for this year comfortably exceeded 100%, a psychological barrier that the government has been able to keep closed. “If we continue on the downward scale of inflation like we’ve seen over the last quarter,” government spokeswoman Gabriela Cerrutti said on Thursday, “and the common [salariales] They keep working and more and more people are entering formal work, we are on the path that the President and the Secretary of Commerce have taken.”
The price of keeping the CPI in check has been a slowdown in economic growth. Activity in October was down 0.3% compared to September. The good start to the year will allow us to end December with GDP growth of around 5%, but expected to be close to zero in 2023. The underlying problem is that Argentina is not solving its structural problems.
The causes of inflation are manifold. The South American country doesn’t have enough dollars to pay for its imports and arbitrarily restricts access to foreign currency. To maintain the value of the peso, Argentina maintains the exchange rate with a split market in official and blue: 187 pesos per dollar in the first and 360 pesos per dollar in the second. The official price serves as an anchor for imported products, but the local market calculates its cost in blue dollars, which at the end of the day is what it costs an Argentine to get the currency on the black market, the only one they have access to . At the same time, the government is financing the fiscal red with the issue, because the country has had no access to the international credit markets since Mauricio Macri declared insolvency in 2018.
The combination of budget deficit, emissions and dollar shortage creates all kinds of distortions. Argentines have gotten used to living with them without agreeing on any solutions. Former Central Bank President during the macrosmo, Guido Sandleris, recalled this Thursday that inflation in 2022 was the highest since hyperinflation in the early 1990s, before the peso was convertible with the dollar. “The root cause,” he said, “is that the government has pushed the emissions-funded deficit to unsustainable levels.”
The Casa Rosada pledged a year ago before the IMF to reduce the primary budget deficit (before paying interest on the debt) to 1.9% of GDP in 2023, until equilibrium is reached in 2024. This will be a major challenge for the government. Presidential elections are taking place this year, and nothing is more unpopular in the election than a fiscal adjustment that cools the economy and affects voter salaries.
Maintaining workers’ purchasing power is high on the Peronist government’s list of priorities. Labor Secretary Kelly Olmos said Thursday they will strive to keep pay rises below 60% “to get closer to projected inflation levels plus a point of recovery.” Massa reckoned his target for April is a CPI “by three”, a goal that seems increasingly difficult to achieve given the legacy he is set to receive from the year just ended.
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