So that the weight of subsidies does not continue to grow, the rates should increase by 40% in 2021

According to the consulting firm Ecolatina, if the government decides to keep utility prices virtually frozen for the whole of next year, a December 2021, economic subsidies may exceed 3% of the PBI.

The consulting firm arrives at this calculation after projecting until the end of 2021 that inflation and wages will accumulate an increase of more than 150% since the last tariff adjustment, which “dates back to the first half of 2019”.

“Using information from the GBA Ecolatina IPC, the price difference in relation to services and private goods would not be far from the level at the end of 2015. The main consequence will be the growth of economic subsidies, which would exceed 3% of GDP, ”explains the book.

He also warns that “the inflation that would be avoided by postponing tariff correction it could be neutralized if the additional spending used to support “depressed” prices were financed by the issue and the excess pesos went to the dollar, forcing a devaluation. “

For the consulting firm, the second alternative “implies the increase of a certain magnitude of the rates in the second quarter of the year, not far from the legislative elections”, which would cause “the difficulty of finding an amount which does not add additional pressure on inflation, but which slows the growth of economic subsidies“.

The increase must be localized around 40% to stabilize subsidy spending relative to GDP, “of a not insignificant magnitude – at the time of the increase, the increase outweighs the moment of the freeze,” the document said.

In any case, the government appears to be delaying decisions to assess the onset of inflationary dynamics in 2021 and, fundamentally, the speed of the recovery in activity. It will also determine the space available for labor income to resolve the rate hike and the government’s ability to concentrate increases while maintaining the social rate for the most neglected sectors.

“After the 2019 and 2020 freeze, rates should increase by around 40% next year so that economic subsidies do not continue to increase as a percentage of GDP,” said Ecolatina, while concluding: “An election year complex approach, where the social and inflationary tensions accumulated throughout this pandemic and atypical year could wreak havoc. Bills that will be transferred to electricity, gas and water? ”.