Inflation is also a political battle | The e …

Despite the repeated strategy of playing politics with the death of the main opposition force (Cromañón, Nisman and now the pandemic) and the outbreaks of media economists, some of them responsible for the macro failure and d ” other champions of failed forecasts, the economic team of the government of Alberto Fernández can show the following merits:

* Debt refinancing with private, international and local creditors, extending terms, with a grace period and lowering the interest rate.

* Reconstruction of the peso debt market, struck by the unusual lack of liabilities in national currency (“reprofiling” in marketing language) of the last Minister of the Economy of Macri, Hernán Lacunza.

* Ordered tax accounts in a very unfavorable economic scenario due to the macroeconomic heritage and then due to the pandemic.

* Despite the restriction of resources, he designed a efficient economic protection device businesses, workers and social groups affected by the coronavirus crisis.

* Diet adjustment Currency management which made it possible first to stop the course of the exchange rate, then to start a constant purchase of dollars.

* Definition of a framework negotiation with the International Monetary Fund which approached the possibility of an agreement under relatively acceptable conditions so as not to interrupt the recovery of the economy.

* He advanced in the possibility of refinance debt maturities with the Paris Club.

In this favorable trajectory, the evolution of inflation is not included. The main and complex short-term challenge facing the Minister of the Economy, Martín Guzmán, is to sharply reduce the rate of price increases. The cumulative rate for the first quarter was tough, with 4.8% in March turning on the lights.

Manuals

Contrary to past experiences which thought that inflation was an exclusively monetary phenomenon, ignoring that the galloping devaluation had thrown gasoline into the price fire, the extended economic team of the Fernández government has sane criteria and simultaneously advances on several fronts.

It means save that inflation has a multi-causal origin, as even the International Monetary Fund has recognized, which has generated emotional hives in the national orthodoxy flock. Some of its members were so shocked that they say they do not believe the existence of this official statement by the Fund, and others directly ignored it, whereas until recently any mention of technical staff was considered a sacred word.

Emphasize the different inflation drivers it does not ensure results, but at least it moves away from obsolete theoretical concepts and practices which have only damaged the social and productive fabric.

As already indicated in this column, the peculiarity of the Argentine economy to be bimonetary, heavily indebted in dollars, middle income and high inflation it takes extra effort to deal with this complexity.

With decades of recording high and very high inflation figures, it is clear that traditional textbooks are insufficient to be applied in the local economy, a situation which requires in-depth analysis and the use of economic policy instruments.

Mission

The economic team admits that Inflation from January to March is outside expected parameters and that it is high. The explicit objective is to seek to gradually reduce it with the resumption of the purchasing power of wages.

After this goal, he underlines three indicators to strengthen the official strategy:

1. The exchange rate it does not act as a driver of the inflation rate, as it did last year.

2. Trade unions who jointly closed clarified it in accordance with the macroeconomic policy objectives set by the government.

3. Fiscal policy it continues on a gradual path of consolidation, in parallel with a gradual and heterogeneous recovery in economic activity.

Reduce the inflation rate, a mission in which not only the economic question but the political project of the Frente de Todos is played out, voluntarism does not lead to a soft path; On the contrary, it guides us to accept the frustration of good intentions.

During these months the combo strong rebound international prices of agricultural commodities with accelerated reconstruction of profit margins caused the inflationary jump.

A report on the economy indicates that in the first quarter of 2021, the commodity price index prepared by the Central Bank increased by 14%, accumulating an increase of 34% since September 2020, mainly explained by the increase in the price of agricultural products.

This impact on local prices is called “imported inflation”. This is one of the biggest increases in commodities in recent years, reaching all-time highs since 2014.

While the rise in these prices improves conditions for the external sector, it has also led to a continued pressure on domestic prices, especially those related to the food basket.

Expectations

The inflation of these months is an expression of the tradition distributive offer that, as has already been proven, in the Argentine economy it acquires an intensity that others do not have.

So much that inflation has marked high monthly figures throughout the pandemic regardless of the collapse in activity at the start of the coronavirus crisis, the freeze of rates, the limitation of demand due to the reduction in the global wage bill and the relative control of the exchange rate.

In the worst months of the pandemic prices continued to rise and the trend accelerated when it started the reopening of the economy, which led to a resumption of activity in most sectors.

Guzmán is convinced that the use of traditional instruments of economic policy (fiscal, monetary and exchange rate) will be able to align the inflation rate to prevent the momentum recorded in the first quarter from reproducing in the months to come.

At the same time, in the economic team, they indicate that at the same time immediate direct actions are needed (control and intervention in sensitive markets) so that the indicator for this month and next month is at levels below those of March.

In the official text explaining the battery of measures that will be implemented to slow down the rise in prices, it is specified that “there is still behavior in the formation of prices which internalizes expectations that are not aligned with the principles of the macroeconomic framework“.

He adds that “it is necessary in this sense deepen coordination, through agreements and regulations which allow greater predictability for the coming months, which will be accompanied by controls and monitoring of price formators, in order to avoid the generalization of speculative behavior“.

Politics

In the Argentine economy, inflation is not just an economic phenomenon; it’s also political. This is a definition that many economists reject, but so it was when they had managerial responsibilities.

The signs in this sense are so transparent that not to consider them is astonishingly naive with the teachings of past experiences at hand. Guzmán translates it by saying that entrepreneurs don’t have to believe in estimates from city consultants, which generate rising inflation expectations.

These projections are obviously political. Pricing companies adjust to hike expectations based on what the error forecasting sect of economists insists in their reports.

Guzmán tries to counter them by saying that you should not believe them because they have wrong in the past due to ideological prejudices. Under the Macri government, they always estimated a lower rate of inflation than actually recorded. Last year, because of this conservative political tendency, the projections went in a different direction. Again and again they got it wrong.

What happens is that building expectations is not just a technical question derives from the misunderstanding about the functioning of the economy, but is a eminently political positioning.

Conduct

In this dispute over the construction of expectations, one of the main protagonists is the political direction of economic power. It is published at are eroding the government of Alberto Fernández and that the ruling party has a setback in the midterm elections.

He does it in several battlefield, from opposition to collective care health policies and feeding versions of vaccine efficacy and availability to promoting economic and financial destabilization. In this last front stand out the following movements:

* Query the price management programs (Care and Maximum).

* The information system for the implementation of economic reactivation policies (Sipre) is resisting, to which large companies must provide data relating to costs and production levels.

* It seeks to reduce the cash flow financing capacity by bringing the Contribution of Large Fortunes to court.

* They are asking for a hike in the interest rate to finance the Treasury through the purchase of debt securities in pesos.

* A few days ago, they began to feed the expectations of a strong devaluation after the legislative elections by operations in the future dollar market.

* It ignores the firm signs of economic recovery and the various official financing programs for the productive sector.

* He criticizes the simple transparency measures of beef exports despite the fact that various maneuvers of under-invoicing have been discovered.

* He favors the hardening of the management of the industrial union by promoting the candidacy for the presidency of the lawyer and lobbyist Daniel Funes de Rioja. If Techint ended up imposing it, it would plunge the UIA into a pathetic picture: a relevant industrial chamber in the country would be headed by a person who is not an industrialist.

In the coming months, the Fernández government’s challenge is consolidate the economic strategy cause a decelerating trajectory in price increases. To be successful in this mission, you must strengthen political strategy against economic power because in this area it is also at stake what will be the immediate trajectory of the inflation rate.

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