The government has adjusted its inflation targets for the next three years, taking a more gradual approach to inflation reduction and pushing back its target of five percent annual inflation to 2020, a year later than originally intended.
The revised annual inflation targets were set at 15 percent for 2018, 10 percent for 2019 and finally 5 percent for 2020. These targets are a little higher than the ones set out at the beginning of the Mauricio Macri administration, and were announced this morning at a press conference that featured the government’s economic heavyweights: Cabinet Chief Marcos Peña, Treasury Minister Nicolás Dujovne, Finance Minister Luis Caputo and Central Bank Governor Federico Sturzenegger.
“Two years after the announcement of the previous targets, we have today a much better view of where prices are, our fiscal policy and our monetary policy” said Dujovne to explain the changes, “and that’s why we feel much more confident in terms of the targets that we can commit to.”
The Central Bank had been targeting an annual inflation rate of 10 percent for 2018, meaning that with the new target of 15 percent it will be able to relax some of its monetary policies. Sturzenegger noted at the press conference that while the inflation target had been missed for 2017, core inflation had shown a decrease throughout the year and that the 22.4 inter-annual inflation rate registered for November 2017 is 18.8 percentage points lower than the inflation rate of November 2016.
Pressed by questions from the media about why the inflation rate had been adjusted soon after the approval of the 2018 Budget and if the new targets were consistent with the government’s anti-inflation policy, Cabinet Chief Marcos Peña stressed that the announcement did not represent a shift in policy but rather a change in the speed with which the targets were to be reached. The government and the Central Bank confirmed that they intend to permanently keep inflation at 5 percent in the future.
While the inflation numbers were adjusted, the economic team noted that primary fiscal deficit figures remained untouched, such as that in 2018 it would be 3.2 percent of Gross Domestic Product (GDP); in 2019, 2.2 percent of GDP, and by the end of the decade, the deficit is expected to clock in at 1.2 percent of GDP. Real growth figures for GDP were estimated to be at 2.8 to 3.0 percent in 2017, and at 3.5 percent each year from 2018 to 2020.
In 2018 Argentina will need US$ 30 billion in financing to cover the fiscal and financial deficits, a figure that is expected to decline to US$ 26 billion in 2019. According to Finance Minister Caputo, the ratio of debt to GDP will increase in coming years from the current 28.5 percent up to a total of 37.3 percent in 2020. The percentage will then decline slowly to 36.1 percent by 2024, according to Caputo. The minister argued that the ratio is below average for Argentina’s neighbors and other emerging economies, and is sustainable in the long run. Throughout the period interest payments will hover around two percent of the GDP.
The figures presented by Caputo include plans for the Central Bank to reduce the funds that it transfers to the Treasury in the coming years. After transfers equivalent to 1.5 percent of GDP in 2017, the Central Bank is expected to transfer AR $140 billion to the Treasury in 2018 (equivalent to 1.1 percent of GDP) and bring the transfers down to AR $70 billion (0.5 percent of GP) in 2019.
Defending the government’s administration of the economy, Dujovne added that the current scenario features economic growth, inflation reduction, reduction of the fiscal deficit as a percentage of GDP, reduction of primary spending as a percentage of GDP and reduction of tax pressure.