The INDEC will publish July’s monthly inflation on August 15, which analysts forecast will be higher than June’s. According to different private surveys, the upward trend in retail prices continued during the first week of August, a month in which analysts’ estimate an increase in monthly price variation could be seen again.
Several factors are influencing these projections. For instance, raises in meat prices is one that stands out. However, August inflation may also be affected by the volatility of alternative exchange rates, many of which set nominal record-highs in the last few days. Additionally, there is also the Central Bank’s acceleration of the crawling peg.
“The volatility of alternative exchange rates might add more pressure to inflation. Right now it’s difficult to figure out why inflation is growing. I would say that prices are rising faster since mid-July because many factors came together: the ‘blue’ [dollar] started to rise, while at the same time the government gave some sectors access to this special dollar, especially corn; taxes on imports also increased. Meat prices began to rise because of corn. In other words, many things have been happening since the second half of July that are causing more inflation, and that is already visible in the data,” Camilo Tiscornia, from the C&T consulting firm, told Herald sister publication Ámbito.
Referencing the surveys done in the first week of August, the economist said that “there was a strong increase in food prices.”
“I think this strong increase in the blue [dollar] will add more pressure to prices. We are also seeing that the devaluation of the official exchange rate is accelerating, which is key. But with so many things happening at the same time, it’s hard to distinguish”, Tiscornia said.
The Scalabrini Ortiz Center for Economic and Social Studies (CESO, for its Spanish acronym) survey also showed that inflation was higher in the first week of August. The indicator showed a 2.7% weekly increase, “driven by household appliances (3.5%) and fresh food (3.5%).”
“Processed foods (9.4%), eggs (9%) and meat (8.3%), including beef, poultry and pork stand out in the food sector”, the study details.
Regarding the impact of how the rise in alternative exchange rates impacted August prices, CESO economist Aldana Montano explained: “I think it might have some impact, but it is difficult to know how much. It depends on the time of the year, and how strong that increase has been.”
“According to what we’re seeing in CESO’s Supermarket Price Index, what’s going to impact August inflation the most are increases in the prices of fresh produce, particularly meat prices. This is due to an increase in the Cañuelas Market, which we started registering by the end of July. This can be seen in the first week of August and will have an impact on monthly inflation. It’s still difficult to make a projection, but the increase in meat prices will be a key factor in August inflation”, Montano explained.
Fundación Libertad y Progreso chief economist Eugenio Marí pointed out that their price index “accelerated in the last week of July and the first week of August, and is shaping up to close the month between 7.5 and 8%.”
“If the run against the peso deepens after the PASO results, however, inflation could increase to a monthly range between 8.5 and 9%,” he added.
“We’re seeing a drop in peso demand in the last few days, which is lowering [the currency’s] value. The financial market is the first place where we see these effects taking place, as it is the most flexible sector, where we need more and more pesos to buy a dollar. But if this dynamic continues, it will affect other prices in the economy”, Marí explained.
Based on what they observed in the first week of the month, consulting firm Eco Go also projects a higher food inflation for August. “After the expansion of new taxes and the implementation of the agricultural dollar, meat prices — kept at bay until now by oversupply due to the drought — increased again, with strong raises between the last week and the first week of August. The survey for the first week of August showed a 2.8% increase compared to the previous week. […] With this data and considering a projected 1.8% weekly variation for the remaining weeks, the inflation of food consumed at home in August could be 8.9% monthly.”