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Argentina's annual inflation rate reached 211.4 percent in December, the country's statistics agency said on Thursday, confirming the extent of the economic crisis facing the country and its new libertarian President Javier Milei.
On a monthly basis, prices rose an average of 25.5 percent in December, compared to a 12.8 percent increase in November. The rate is the lowest since 1991, when Argentina was emerging from a period of hyperinflation.
Argentina's chronically high inflation is largely due to previous governments relying on money printing to finance spending – a practice Milei railed against during the election campaign. But price pressure intensified in December when Milei devalued the peso's artificially high official exchange rate by 54 percent and overrode price agreements. Both measures had a particular impact on food prices.
Economists said December's monthly rate would likely be near the peak of Argentina's current inflation crisis, with a burgeoning recession likely to slow further increases. The IMF forecasts that Argentina's economy will shrink by 2.5 percent in 2024.
Fernando Marull, director of financial advisory firm FMyA, noted that Argentines' purchasing power fell by about 10 percent on average in December as wages rose more slowly than prices. Meanwhile, a regular survey of retailers by Argentina's SME Association showed a 13.7 percent drop in sales in December compared to the same month in 2022.
Marull said both inflation and economic activity would remain “terrible” until at least January and February. “If Milei’s economic plan is successful after this, we should see a recovery.”
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Milei has launched economic reforms he calls “shock therapy,” and his economy minister, Luis Caputo, announced spending cuts and tax hikes in December aimed at eliminating the budget deficit this year. Milei also issued a sweeping presidential decree that deregulated large parts of the economy.
The president faces a long list of obstacles to implementing his plan, including legal challenges to the decree, a planned general union strike later in January and a fight to approve reforms in Congress, where Milei's coalition has a small minority.
Analysts say the impact of spending cuts, particularly the phase-out of energy and transport subsidies, will increase the risk of disruptive protests in the coming months.
After several weeks of relative calm following the Milei devaluation, the gap between the official exchange rate and the black market rate, a closely watched indicator of market confidence in the government, has grown from 18 percent to 30 percent since the start of the year.
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Adding to the government's woes is a ruling on Thursday by U.S. federal judge Loretta Preska, who ruled last year that Argentina must pay $16 billion to two now-defunct investors in energy company YPF after the government refused to buy its shares at an agreed price when the company was expropriated in 2012.
On Thursday, Preska said the plaintiffs may seek to seize the country's assets to get back their arbitration award after Argentina failed to meet a Jan. 10 deadline for posting securities pending appeal. Milei said that while Argentina was “ready to meet its obligations,” its economic situation currently makes it impossible to post collateral or deliver the $16 billion.
However, the IMF gave the government a boost on Wednesday by tentatively approving a disbursement of $4.7 billion from Argentina's $43 billion loan.