Inflation will go from an average of 3.5% for the fourth quarter of 2020 to 3.9% in the first quarter of 2021. 2020 closes its last quarter with an average inflation of approximately 3.5% per month, leaving a strong drag for the beginning of this year.
In the coming months, Argentina will live with high monthly inflation rates that will average 3.9% in the first quarter of the year. This further complicates the economy, increasing the challenge of reversing the path the country is traveling.
Iván Cachanosky, Chief Economist at the Fundación Libertad y Progreso, referred to this situation. “The government continues to take patch measures instead of basic solutions,” he said in relation to price controls, which seek to increase the amount of goods reached in the price care program. “It was also questioned that the increase in prepaid is less and it is debated whether to back down or not with the increase in rates. All this, in the context of an electoral year,” he analyzed and added that “the pull between the IMF, which holds Guzmán’s arm to reduce the fiscal deficit in 2021, and the Kirchner wing of the ruling coalition is clearly visible, that pulls him by the other arm to kick all the adjustments for after the elections”, he concluded.
Diego Piccardo, Economist at Libertad y Progreso, stated that “Argentina will be destined to live with high levels of inflation as long as the fiscal deficit is present.” In addition, he argued that financing sources “are conspicuous by their absence” due to macroeconomic imbalances, which is why it continues to be highly dependent on monetary issuance for the moment. The problem is that the economy can hardly resist the same emission levels of 2020 in the current year, so a strong emission will have a stronger correlation in inflation in 2021. Economists anticipate that 2021 will be a challenging year for inflation. The government may choose to meet the challenge with superficial short-term measures (price controls, rate freezes, etc.), instruments that have already failed in the past; or take advantage of the negotiation with the IMF to present an economic plan that inspires confidence and where there is a decreasing path of the fiscal deficit to consistently clean up the scourge of inflation.
The Fundación Libertad y Progreso makes available a series of Structural Public Policy Proposals to guide the country to a virtuous circle: https://www.libertadyprogreso.org/politicas-publicas/