Following the dip seen in June, inflation grew again in July, according to several surveys conducted by private consultants, who estimate the monthly inflation will be between 6.5 and 7.2%. 

Also according to their projections, this upward tendency will continue in August, since analysts estimate that the recent measures announced by the government, added to the volatility of the different exchange rates, will have an impact on prices.  

“[Our] index projects a 6.5% [inflation] to close the month, although it remains to be seen if there are any new markups in these days,” said Eugenio Marí, chief economist of the Libertad y Progreso firm. “Don’t forget that the 6% figure in June was highly influenced by seasonal prices, and that that moderating effect disappears in July and August.”

On the other hand, Eco Go estimated inflation of 6.7% for this month. According to their retail price survey, food prices registered a 1.7% variation in the third week of the month. “With this data and considering a projected weekly variation of 1.5% for the last week of the month, the inflation of food consumed at home in July would climb to 7.3% per month. If we also consider the evolution of food consumed outside the home (7.3%), food inflation would reach 7.3%,” they said.

The consulting firm Analytica projected an inflation of 7.1% for July. For C&T, the projection is 7.2%: they highlighted that, in addition to a higher increase in food and beverages, the impact of “tourism” due to the winter break must be accounted for, as well as raises in healthcare, utility bills and school tuition.

Following its survey of the first half of the month, the consulting firm Ecolatina, on the other hand, estimated inflation for July would be under 7%. “For the first fortnight of July, the Ecolatina index for Greater Buenos Aires showed a 6.5% growth compared to the same period of June. This shows that the deceleration registered since the second fortnight of May is sustained. The moderation is due to a lower growth of fresh food, added to the fact that July registered fewer increases in regulated items than in the two previous months”, they said.

Inflation: what to expect in August

Analysts also warned of a series of factors that may increase prices in August. Among them, they highlighted the impact the measures the government announced at the beginning of the week could have, added to the volatility shown by alternative dollars and what could happen after the primary elections known as PASO.

“A strong increase could be expected in August, because that is when the new tax of 7.5% on goods and 25% on services will have a main impact”, Claudio Caprarulo, director of Analytica, said, while also highlighting that the increase in alternative dollars may have an influence: “We have to see the result of the PASO and market reactions. August will be a key month.”

Marí pointed out that “the government’s latest measures are a devaluation done through taxes; in this sense, they also strengthen tax collection, but transfer costs to companies and consumers.”

“The differential exchange rate for corn (which represents about 10% of the cost structure of beef) and taxes for imports of goods and services, will be partially transferred to the prices of final goods, especially in items with the highest weighting of tradable goods”, said the Libertad y Progreso economist.

“There’s equipment and home maintenance items, clothing and food. We are already seeing important markups in electronics and also price increases in the Liniers meat market (meat has a 7% impact in the consumer price index). Most of the impact will be seen in the [inflation] measurement for August, which will be revealed September 14, which we project will be around 7.3%,” said Marí.

Meanwhile, Ecolatina analyzed the government’s measures and pointed out that one of its “collateral costs” is a “greater inflationary pressure.”

“Although the impact is less generalized than that of validating a small balance of the official exchange rate, the incidence on domestic prices will not be innocuous: extending the ‘agricultural dollar’ to cereals like corn implies making a central element of the chicken and pig fattening sector and feedlots more expensive; while applying a tax on imports (increasing the replacement cost) means making goods and inputs used in productive processes or final consumption of the economy more expensive, which also generates a transfer to domestic prices.”

Originally published in Ambito.com