Faster-than-expected inflation deceleration in an environment of economic contraction
In the third week of May, the trend towards stability in the informal foreign exchange markets was interrupted. There was an increase in the CCL exchange rate and in country risk for the first time since February.
These changes may not signify a reversal of trends but rather a circumstantial and limited response to the sharp reduction in the interest rate that the Central Bank is paying for its remunerated liabilities and the delays experienced in the Senate's treatment of two laws that the government considers fundamental to accompany its strong macroeconomic adjustment with structural reforms to attract investment and facilitate productivity rises.
For the moment, the main characterization that can be made of the first five months of Milei's government is that it has been able to avoid a worsening of the inflationary situation that seemed inevitable at the beginning of December 2023, achieving a reduction in the inflation rate faster than the market and most economic analysts expected, as well as a sharp reduction in country risk. However, to achieve these results, it produced an unprecedentedly strong reduction in public spending in real terms and, as could not be otherwise, worsened the recession that had already begun in the second half of 2023.
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