April implicit annual inflation close to 140%, economic announcements expected

ARGENTINA - Report 15 May 2023 by Esteban Fernández Medrano

Contrary to what seasonal factors would have anticipated and well above market expectations, April's monthly CPI inflation jumped higher, to 8.4% m/m. This brought the annual rate to 108.8% y/y and implicit annual inflation, i.e., annualizing April´s seasonally adjusting monthly rate, to 138% y/y.

Such results do not bode well for the government’s attempt to control expectations or to run an election. Therefore, Economy Minister Sergio Massa is expected to announce this week, perhaps as early as this Monday, economic measures to curb inflation and devaluation expectations. However, as we have said before, the BCRA faces a complex decision when hiking the reference rate to try to tame inflation and/or devaluation expectations, as this also implies accelerating the interest payments of its remunerated debt instruments, which already stand today at an astonishing 250% of M0.

In this respect, it is worth pointing out an apparent change in the BCRA’s interest rate behavior or its reaction function. Up to the unexpected inflation peak in July of last year, the BCRA’s effective annual reference rate roughly followed past inflation. Since then, the reference rate has shifted from inflation accumulated over the past 12 months to more forward-looking expectations.

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