Inflation continues to trend downward. For this trend to solidify, the process of the removal of exchange controls must be clearly outlined.
The monthly inflation rate reported by INDEC for April is expected to be around 8.5%, three percentage points higher than the estimates based on online prices. This disparity is attributed to adjustments in prices and utility tariffs previously heavily controlled and distorted by the former government, which are now beginning to align with costs and normal profitability.
For May, we anticipate an INDEC-reported CPI monthly rate between 6 and 7%, while online prices trend to 5%. The gap between the two is due to additional adjustments in controlled prices and tariffs expected during May, which have been spaced out as per the Ministry of Economy's directives and are likely to contribute 1 to 2 percentage points to monthly inflation.
Starting in May, indexation mechanisms tied to the previous month's inflation will affect pensions, salaries, and utility tariffs, including fuel prices. These mechanisms will become factors of inflationary inertia, challenging attempts to neutralize inertia through the official exchange rate adjustment (crawling peg) of 2% per month.
Moreover, anticipation of a devaluation in the official exchange rate upon the eventual unification and liberalization of the exchange market will begin to influence expectations. Containing expectations of devaluation will require a credible plan for transitioning towards a monetary and exchange rate regime that fosters price stability and breaks the inflationary inertia. Until that is achieved, our forecast suggests monthly inflation rates will stagnate between 6 and 7%.
Now read on...
Register to sample a report