Naaju Breaking News, Live Updates, Latest Headlines, Viral News, Top Stories, Trending Topics, Videos
[ad_1]
In recent months, the publication of each new inflation data seems to confirm the perception of a "lack of control" and reveals how difficult it is to eliminate this scourge.
If inflation is a purely monetary phenomenon, how is it possible for such increases to be recorded when the expansion of the monetary base was almost nil in the last half of the year?
Last year, the price increase averaged 54%, almost double the rate of expansion of the monetary base. In addition, since the implementation of the new monetary regime – last October – the annualized rate of increase in the price has remained at this level while the monetary base has hardly increased.
What you need to know today | The most important news of the day to read in ten minutes
Monday to Friday morning.
If we badyze only the first quarter of this year, inflation is slightly accelerated, along with a nominal decline in the monetary base.
Unless we experience a marked process of declining basic demand – which I do not see at the moment – we should think that, at least in the short term, there are other factors that influence price changes.
The adjustment of tariffs and relative prices, as well as attempts to recompose margins and wages, also stimulate price increases, as well as the inertia generated by the renegotiation of contracts.
The fact that basic demand is not diminishing now does not mean that it has not done so in the past. In fact, its decline in 2018 has resulted in a sharp depreciation of the peso. The increase in current inflation is partly due to the delayed effect of the exchange rate.
In the last 12 months, the value of the dollar has doubled, thus exceeding the inflation rate. However, over the past 6 and 3 months, inflation has remained high despite the fact that the rate of currency depreciation has fallen sharply. It is expected that if this "exchange rate peace" is maintained, the pressure on prices will diminish.
Positively sloping ranges create expectations for the rate of exchange rate depreciation – initially set at 3% per month and down to 1.75% – directly leading to higher prices for exportable goods and importable, but also indirectly to all who use them as inputs. In turn, in an economy like the one in Argentina that thinks in dollars, all sectors are trying to keep their profits in dollars.
In the same spirit, the Central Bank announced a new change in the currency exchange system. It has ratified the goal of maintaining unchanged the money supply in the economy for the rest of the year (which implies a sharp reduction in real terms ("purchasing power")) – and decided to freeze the "bands" of exchange at the level reached by the government. last week.
This last decision does not solve the two crucial problems posed by the regime – the width of the band allows a high volatility of the rate of exchange and the ground and the roof can be perforated -; but it seeks to diminish the inflationary inertia that had previously generated the positive slope.
Guido Sandleris and Gustavo Cañonero at announcements of new Central Bank measures.
Since the announcement of the new regime, and even before, voices have been heard about a possible exchange rate mismatch, based on the external deficit that still records the country. Although the current account of the balance of payments (the difference between the country's income and expenditure relative to the rest of the world) remains in deficit, the imbalance is explained by the payment of interest on the debt to which the Government faces, which is financed for the loan of the International Monetary Fund. In this way, the important thing is to badyze the evolution of demand and the actual supply of foreign exchange on the foreign exchange market.
Exchange rate figures show that during the first few months of the year, the supply of foreign exchange for the sale of goods and services, as well as the collection of profits and dividends, exceeded the demand for foreign exchange. for these same concepts.
If this operation is disaggregated by sector, in the case of the private sector, the "caja base" current account has been in surplus for six months and, because of the record harvest of agricultural products and livestock, this surplus should be amplified.
Added to this is the fact that the dollar prices of the national economy are at levels well below those observed a year ago with a minimum recorded in September 2018 and relatively stable since then. But even with freezing tapes, the width of the same has a margin to avoid appreciation of the real exchange rate.
If the "nonmonetary" factors remain stable, there could be a reduction in inflation; but the determining factor will be the demand for pesos. As long as the exchange rate is kept in the ranges, the forms of intervention are limited and indirect. The Central Bank can only negotiate by selling dollars to futures and adjusting the key rate levels (indirectly with the cash amount). On the other hand, the government will sell $ 9,600 million, a very interesting amount to impact the foreign exchange market, but how to do it – through the daily offers of a predetermined amount – is not the most convenient solution to intervene.
The potential dollarization of portfolios in an economy with a minimum of monetization does not seem a priori worrying, as long as the demand for currency for transactions continues to exist.
.
[ad_2]
Source link
