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Central Bank Estimates Inflation Will Increase For September

Much of this projected increase is due to last month's currency crisis

By | [email protected] | September 12, 2018 11:41am

Argentina Printing Pesos At Fastest Pace In 4 MonthsStacks of 100 Argentine pesos are displayed for a photograph in Buenos Aires, Argentina, on Monday, Dec. 13, 2010. Argentina is printing pesos at the fastest pace in at least four months, fueling inflation that economists estimate is climbing to about 30 percent. Photographer: Diego Giudice/Bloomberg

On Tuesday, the Central Bank released a Monetary Policy statement that projected an upward trend in Argentina’s inflation due to the latest spike in the exchange rate. This comes soon after another recent increase in prices during the month of August. Given the almost unavoidable drop in consumption that will arise as a result, the Central Bank conceded that, throughout 2019, Argentina’s economic activity will likely “plateau”— a stagnation that has been forecasted by a number of Argentine economists.

The same statement also confirmed that the interest rate, in pesos, will remain at 60 percent until December. This rate was set by the Central Bank during the sudden currency exchange crisis that caused a few days of chaos in Argentina’s markets during the last days of August, after the peso crashed to a record low.

According to the official report released by the Central Bank, Argentina’s “inflation slowed down during the month of July”. However, “high frequency indicators of economic activity are projecting a new acceleration for the months of August and September.” While the National Institute of Statistics and Census of Argentina (INDEC) will publish the official numbers tomorrow, private consultancies have forecasted a month-on-month increase of close to 4 percent— a significant amount.  

Much of the projected increase in inflation for the month of September is due to inertia from last month’s currency crisis. While, according to the report, “the behavior of prices in August would be influenced mainly by the increases in regulated prices of the month,” prices in September are expected to spike “due to the transfer to prices of the exchange rate volatility experienced at the end of August”.

As the vast majority of wages lag behind inflation and take time to adjust, a decrease in Argentina’s consumption will almost inevitably follow— an important economic stimuli who’s decrease will lead to an overall drop in Argentina’s general economic activity— undoubtedly deepening the ongoing crisis. In fact, regarding the effects on Argentina’s economic activity, the Central Bank’s statement conceded that “it is estimated that the economy will fall in 2018, and that it will remain at similar levels in 2019.”

According to official figures presented this Tuesday by Interior Minister Rogelio Frigerio during a meeting between President Mauricio Macri and the nation’s governors, the final, accumulated inflation for the year of 2018 will be close to 42 percent— with an overall drop in economic activity of 2.4 percent. As far as 2019 is concerned, meanwhile, the year is expected to begin with a projected inflation of close to 25 percent, while economic activity will likely remain idle.