Expecting July inflation

ARGENTINA - In Brief 11 Aug 2024 by Domingo Cavallo

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Despite the gradual liberalization of regulated prices, the government has focused on the reduction of the inflation rate as one of its most immediate and visible economic achievements. For this, it undertook, from its beginning, a demanding fiscal contraction, and a gradual elimination of the central bank’s debt overhang with its consequential endogenous factors of monetary expansion. With this goal in mind, the fact that the City of Buenos Aires published last Thursday its July inflation rate (CABA-CPI) at 5.1% m/m (the second consecutive rise following 4.4% m/m and 4.8% m/m in May and June, respectively), would seem a rather unpromising indicator. Still, local authorities expect the National Inflation number, to be published next Wednesday, to end close to (or even below) May’s 4.2% m/m, rather than the 5% m/m level suggested by the July CABA-CPI.Table 1 As we pointed out in earlier reports, due to the current process of relative price adjustments between regulated and non-regulated CPI-components, the CABA inflation index is not an unbiased estimator of the National level. This is not only because the City of Buenos Aires had benefited from much higher levels of utility subsidies, compared to the National average, which now must be undone, but also because its weights in the basket are different, in which regulated sectors play a more significant role. The following table compares the weights of both indices. “Housing, fuel & electricity” alone has an 8% p. higher weight in the city than nationwide. If we add “transport” and “health”, this difference rises to 9.2 p. Finally, on a relatively unrelated point with respect to regulated prices, “restaurant and hotels”, ...