With no official numbers yet, estimates show December ended with an inflation rate above 5%. Thus, 2022 ended with a Consumer Price Index (CPI) rise close to 95% year-on-year, a record in recent decades. And the outlook for 2023 is not encouraging.
Several analysts have pointed to a series of factors that could push prices upwards again in a year marked by presidential elections, and that would cause inflation to cross the 100% barrier year-on-year in the coming months.
Adjustments to different regulated prices, the volatile nature of alternative exchange rates and the potential impact of the drought on agriculture are some of the causes that may threaten the CPI’s slowdown over the coming months. In fact, according to the Survey of Market Expectations (REM) carried out by the Central Bank, the inflation forecast for December 2023 is 99.7% year-on-year.
Some estimates show that after the slowdown in November (4.9%), inflation will increase again, both in December and in the early months of this year. “For the first quarter of 2023, we project that the Retail Price Index will return to monthly variations of around 6%, reflecting its underlying monetary and fiscal fundamentals. This will be joined by delayed adjustments in regulated prices; considering the accelerated end of tariff subsidies and also the increase in transport fares. With all this, the rise of the general CPI should cross the 100% mark during the first months of next year ”, said Eugenio Marí, Chief Economist of the Libertad y Progreso Foundation.
“The floor for inflation in 2023 is at 100% year-on-year,” said economist Jorge Neyro, adding: “Inflationary pressures derived from regulated price increases, a likely acceleration of meat prices after several very stable months, monetary emission that is pushing the financial dollars and also, the matter of a certain increase in public spending before the elections, added to the great drought that will probably reduce the supply of dollars next year, all this exercises pressure that will maintain inflation at high levels, at least 100%”.
In this context, Neyro argued that it would be hard for any government measures to alter this course: “Avoiding this year’s levels is almost out of reach for the government, except for some temporary successes of the Fair Prices program and some price freezing measures. But prices of private healthcare companies are going to be indexed to inflation or wage increases; buses and metropolitan trains, too; wage hikes themselves are above 100% in many sectors. All this is going to keep increasing inflation, there is no chance inflation will fall below 100% in the long term”.
A similar path to 2022
“Tentatively, inflation could easily follow the same path of this year,” said Martín Kalos, director of EPyCA Consultores. “In an optimistic scenario, I would believe that it may slow down month by month, very gradually. But that does not mean that it won’t have fluctuations linked to, for example, the movement of parallel dollar rates, or new currency control measures or even price agreements. So, politics, which still looks uncertain for next year, is key to knowing what the final course will be.
“Yet today, assuming the current situation won’t change, one can expect a very gradual slowdown. And so, the accumulated inflation rate may drop a bit compared to this year’s, but it would remain at higher levels than previous years. And this underscores the fragile nature of the issue, because in the face of any unexpected shock, any episode of crisis, a nominal acceleration could happen again, equalling this year’s numbers or even exceeding them,” Kalos said.
And this year there will be several factors that may generate economic volatility. The main one is the presidential election. “That is going to be the top element. In between, of course, there are international geopolitical risks (such as oil prices). We have to follow the issue of public services tariffs, which is one of the key components and has been falling behind year by year. You have to follow the official dollar rate, which has been lagging behind the rest of the prices. We must also follow the issue of salaries, which have been falling behind almost uninterruptedly since 2016, and in the context of an election year the government will surely want to give some kind of boost to household incomes,” analyzed the director of EPyCA Consultores.
“I mean, there is a lot of political uncertainty and there is a baseline scenario that may be moderate compared with 2022, but is still mostly unpromising,” Kalos concluded.
Finally, Martín Calveira, a research economist at the IAE Business School, said that in recent months “the monthly inflationary dynamics have shown a decline after holding above 6% since March, demonstrating the temporary effects of price regulation and control.
“Indeed, the timeframe of the effects appears to be short-ranged given the imbalances in the monetary and exchange markets,” he highlighted.
“Similar inflation is expected for next year, at least in the first quarter, and despite the insistence on price controls and agreements in a macroeconomy with sustainable imbalances. In the absence of a comprehensive stabilization and growth program, the price dynamics will continue in a similar way,” Calveira stressed.