Inflation: why Argentina is one of the few countries where food has increased due to rising commodities

Argentina is part of a select group of countries that have seen their price indexes accelerate due to rising international food values. Inflation of the basic basket increased from 3% per month on average in 2020 to 4.4% During the first few months of the year, while in most of the region’s economies, indices either decelerated or remained stable.

This finding is part of a recent study by the Institute for Economic Studies on Argentine and Latin American Reality (Ieral) of the Mediterranean Foundation, in which measured the impact of rising raw materials on food prices in nine Latin American countries.

Food inflation in Argentina fell from an average of 3% per month in 2020 to 4.4% in the first few months of the year, while in most of the region’s economies, indices have decelerated or have remained stable.

In this sense, Ieral showed that a periodic survey carried out by the FAO (United Nations) reflected that the international value of a food basket (which contains a mixture of products comprising the main food products among the meat, dairy, oils, grains and sugar increased by 3.2% per month in the first five months of 2021, which implies a considerable acceleration compared to 0.6% in 2020.

Within this basket, the prices of the different product groups have accelerated their pace compared to 2020, mainly oils (+ 5.9%) and sugar (+ 4.1%). “It should be noted that in the evaluation of this basket, FAO includes foreign trade prices and in many cases, the products are in fact more inputs for food processing, that is to say, ‘they are not finished products, in the case of corn cereals which is consumed almost entirely processed, ”Ieral clarified.

From these data, Juan Manuel Garzon, the author of the book, compared the behavior of food within the price indices of different countries. For the Argentine case, “Food and non-alcoholic drink price inflation fell from 3.0% per month in 2020 to 4.4% per month in the first four months of 2021,” Ieral measured. “In other words, the rate which was already high increased by 1.4 percentage points,” he continued.

The reality of the countries of the region is very different. “Now in Latin America, and analyzing 8 countries in the region to have a relatively large sample, inflation for the same good was only 0.4% per month in 2021 (median value, that is to say that which leaves half of the sample above and the other half below), a considerably lower rate, but which also shows a slowdown (very slight) compared to 2020, where the median was 0.5% per month, was one of Ieral’s conclusions.

Garzón looked at inflation figures for the past few months for Brazil, Chile, Uruguay, Colombia, Peru, Mexico, Costa Rica and Bolivia to be able to compare them with those for Argentina. The survey yielded results which four countries show slowdown in food prices (Chile, Uruguay, Costa Rica and Brazil), three of them are accelerating (Peru, Bolivia and Colombia) and one (Mexico) shows no change.

The highest monthly inflation rate is observed in Colombia (+ 1.3% monthly, which contrasts with 0.4% in 2020) and lowest in Costa Rica, where prices fell 1 percent. “Brazil and Uruguay, two neighboring countries and perhaps more comparable in terms of consumption baskets with Argentina show rates of 0.4% and 0.5% monthly in 2021 ″, specifies the work published by the Ieral.

The study tested an explanation of why inflation in Argentina is higher than its Latin American peers. “Of course, there are many explanations, including the challenges of prudential management of the macroeconomics (monetary policy, exchange rate), microeconomic aspects but also the shaping of consumption basketsGarzón said. Thus, he explains in Argentina “there are channels that are much more linked to foreign trade than others and which will therefore transmit more quickly what is happening on the outside: for example, an increase in oil prices will hit the shelves in a few days, while a rise in pork prices can take several months ”.

The general survey showed that four countries show a slowdown in food prices (Chile, Uruguay, Costa Rica and Brazil), three of them are accelerating (Peru, Bolivia and Colombia) and the last one shows no changes (Mexico) .

“The perception of the duration of the phenomenon of external price increasesIf this is interpreted as temporary (a few months), its impact on exportable production and investment decisions will be less than if they were understood as something more permanent, ”he continued.

The Ieral report concludes that “what has been achieved in these countries reveals that the high inflation in Argentina, especially in these products (an inflation which is 11 times the average rate in the region) it cannot be anchored in the external context and a better explanation of the phenomenon must be found, surely more associated with monetary policy (past, current or planned emissions exceeding market requirements) and the country’s economic organization (an increasingly closed economy, dependent on the public sector and with weak incentives for private investment) ”.

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