Argentina’s inflation has exceeded the sum of 10 Latin American countries

Inflation has increased in several countries in the region which are beginning to register a normalization of their economy. However, in the case of Argentina, there was a pole vault, which has little to do with the exogenous conditions that the economics team usually uses to explain this anomaly.

So you can see in the inflation accumulated between January and June of this year, where Argentina again recorded the largest increase in regional inflation, only exceeded, as usual, by Venezuelan hyperinflation.

From the beginning of the year until now, Argentina saw a 29.1% jump in prices, which have reached 50% in the past 12 months. Regional leadership remains in the hands of Nicolás Maduro’s Venezuela, which reached 19% last month, 455% in seven months and 1984% last year.

Far, far away, from Argentina, it was located Uruguay, with a 5.3% price increase since last January and 7.3% last year. Next come Brazil with 4.7% in 2021 and 8.9% since July 2020, by the 0.5% recorded last month.

A step below was located Mexico with 4%, after 0.5% in July, while last year, it rose to 5.8%. Colombia has lagged behind with 3.5% (0.3% in July) since January and 3.9% last year.

One step later is Chile with 2.8% in the last seven months (0.8% in July) and 4.5% last year. Paraguay follows just below, with 2.7% since January (1.2% in July) and 5.2% in the last 12 months.

Two countries have accumulated a rise in consumer prices of 1.2% since January: Peru, with 0.5% in July and 3.9% in one year; and Ecuador with 0.5% last month and year on year.

Then, Costa Rica recorded 0.6% since January, -0.2% last month and 1.4% in one year; finally, Bolivia had 0.4% since the beginning of this year, 0.1% last month and 0.2% last year.

The result is not more encouraging if we look at analysts’ projections for 2021 and 2022: for Argentina, 48.9% are expected for this year and 42.3% for the next, against 9% and 6 , 9% that is estimated at the regional level. .

For Mercosur as a whole, according to the latest Latinfocus report, 15.1% is expected this year and 11.4% next year. However, in Brazil, it should be 6.6% and 3.9% respectively; in Uruguay 7.2% and 6.7%; and in Paraguay, 3.3% in both years. Venezuela leads the rankings with 1,549% and 746%.

In the Andean region, Bolivia would show a price increase of 2.2% this year and 3% next year; Ecuador of 0.7% and 0.9%; Colombia, 3.6% and 3.2%; and Peru, 3.2% and 2.7%. Meanwhile, Chile would finish with 3.7% and 3.1% and Mexico with 5.6% and 3.7%, respectively.

Faced with this scenario, the central banks of the region have decided to restrict monetary policy, with more or less aggressive responses in terms of rising interest rates, a tool that the Central Bank of Argentina does not seem to take into account as one of the tools to stop the rise in prices.

The reasons for decoupling

The Economist Florencia Fares from UNSAM indicated in this regard that the difference between the country and the rest of the region, “It has to do with the historical context we are living in Argentina, the protagonist of which is an inflationary process, already anchored in the behavior of economic agents.”

“Argentina has experienced high levels of inflation for a long time, and agents are learning and developing defense mechanisms against this phenomenon. Here the inflationary inertia is very high, which, any shock that hits the economy (for example, increase in food prices at the international level) shows a greater persistence of domestic inflation than elsewhere ”.

Argentina has long experienced high inflation rates, and agents are learning and developing defense mechanisms against this phenomenon (Florencia Fares)

“It is also true that the transfer of exchange rate variations is stronger in Argentina than among its neighbors (the to cross), being also something structural. Although in some markets the mechanism by which the value of the dollar can affect costs and prices is not so obvious, one could say that at this point the dollar is a reference price which coordinates the rest of the prices in the ‘economy. Therefore, any change in this price affects the rest of the domestic prices, ”he concluded.

Meanwhile, the economist Jorge neyro stated that “prices increase further in Argentina because we have been on a high inflationary trajectory for a long time; In 2019, there was 53.8% and only a quarantine as hard as that of 2020 could bring it down, but after the quarantine you had many prices exceeded (gasoline, utilities, among others). “Some were accommodated in the first half of 2021, in particular gasoline, tolls, prepaid, public transport (taxis, subways); in other words, we are slowly getting closer to the previous inflation rate, ”he said.

“The issue that had to be made had an impact on the exchange rate differential and which triggered the rise in goods that had become cheap like cars, imported products or building materials, cheap in hard currency,” he said. he clarified. In addition, “there have been supply shocks in markets like meat, which also impacted the local price.”

Su by Gabriel Zelpo indicates that the difference in price increases between Argentina and the rest is due to the fact that “essentially in other countries the independence of the central bank is respected and not here”.

“Independence does not mean that it acts completely in isolation from what happens to the tax bottom or to the country. But we have tools and a framework for action to achieve the goal that we know a central bank can achieve, price stability, ”he said.

Basically in other countries the independence of the central bank is respected and here not (Gabriel Zelpo)

“In some cases, many more goals are given (in Argentina, it is), experience shows that central banks are not good at achieving other goals beyond price stability and financial; financial supervision is often divided into superintendents, ”Zelpo concluded.

Regarding the response of central banks in the region to the rise in prices, Neyro explained that “recently, some have sharply increased their rates: Brazil to 5.25%, Mexico 25 basis points to 4.25% and in Colombia, they have left them stable at 1.75%, at a much lower level, in part because inflation is only accelerating. the country”. As, “The board of directors of the Central Bank of Chile has adjusted the monetary policy rate upwards, which was at a technical minimum of 0.5% since March of last year, when the pandemic broke out in the South American country, at 0.75%.

For Zelpo, the sign of the times among central banks, with the exception of Argentina, is “more restrictive monetary policy”. The results of this divergence of strategies are in sight.

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