Despite its strong political and media impact, the 3.4% in March was not the most serious figure left by the CPI: the inflation in dollars It is skyrocketing to unprecedented levels. In the first three months of the year, The average prices of the Argentine economy increased by 14.3% in US currencythus supporting the criticism about the loss of competitiveness.
The figure is the result of a lethal mix: an acceleration of inflation at the domestic level, at the same time as the exchange rate falls. From the beginning of the year until now, The price of the official dollar fell by 4.2%, while prices in pesos rose by 9.48%.
This means that prices, in dollars, rose more than in pesos. Someone who had a US$100 bill on the first day of the year could buy 14.3% more than on March 31. Expressed another way, that same bill, after three months, had a loss of purchasing power of 12.5%.
If the calculation is done in annual termsthe numbers also indicate a loss of competitiveness: while the dollar rose 15% in 12 months, the CPI accumulated 32.6%, which implies that the prices of the Argentine economy, in dollars, rose by 15%. If we discount the US inflation -3.3% in the last 12 months-, then Argentina’s “real” dollarized inflation remains at 11%.
To celebrate or to cry?
Is this necessarily a symptom of problems in the economy? From the government’s point of view, no. Because as Minister Toto Caputo has emphasized in recent days, this fall in the dollar is the result of greater demand for pesos by the public and, furthermore, it is the expression of a flow of foreign currency entering the economy, product of the greatest confidence of the international market.
Speaking in silver, The income was about US$13,000 million on a financial level, due to the wave of issues of negotiable obligations of private companies and debt bonds of provincial governments.
To this is added the trade balance surplus of about US$4,000 million in the last three months. The government is correcting upwards its projections of foreign exchange income from foreign trade, given the increase in the price of oil, just in the midst of Vaca Muerta’s productive boomwhich adds to an excellent agricultural campaign, with prices also sustained in the global market. Caputo hinted that the field could make a contribution of more than US$42 billion, which would imply a historical record.
Optimism about the inflow of dollars reaches such a level that, in the reports of investment banks, the occurrence of an eventual current account deficit is no longer a cause for concern, given that an eventual trade surplus of US$20 billion It would compensate for the outflow of dollars from outbound tourism.
The industry loses competitiveness
Furthermore, this drop in the exchange rate occurs at the same time that the Central Bank is buying foreign currency on a daily basis – it has already passed the US$5.5 billion mark so far this year – and also interest rates are in the process of fallingthe government found the arguments to respond to the classic accusations of generating an exchange rate delay that will not be sustained over time.
But, seen from the producers’ side, the numbers are overwhelmingly forceful. So far this year, other economies in the region have also seen their national currency recover. The case of Brazil It is even stronger than the Argentine, because the dollar, measured in reais, fell 5.8% in the first three months of the year.
But of course, in the neighboring country there is an annual inflation of 4%. This implies that, for the Brazilian economy, inflation in dollars was 5.9% in the quarter. That of Argentina, 14.3%, which implies that local industrialists lost competitiveness, by increasing their costs by 8% compared to their northern neighbors.
If the comparison is made against Chilethe Argentine worsening is even more noticeable: the price of the dollar, measured in Chilean pesos, fell 1.5% in the first quarter, while accumulated inflation was 1.4%. This implies inflation in dollars of just 3%.
It is a situation that fuels the discomfort of the Argentine industrywhich is registering a recessive moment, and where the use of installed capacity barely reaches 53%, with minimums of 25% in the hardest hit sectors, such as clothing manufacturing.
Concern in the countryside due to the rise in inflation
And not only are industrialists concerned about the loss of competitiveness, but also the alleged “winners of the model” view the situation with concern. This is the typical case of soybean producers, who despite having registered an improvement in the international price, fear a reduction in the profitability margin.
It happens that The costs accompany inflation in dollars. This is something that has been evident, above all, since the conflict in the Middle East began, with the skyrocketing price of fertilizers such as urea and diammonium phosphate – derived from petroleum – and which constitute a fundamental input for the field.
Speaking in numbers, before the conflict it was necessary to sell 1.12 tons of soybeans to be able to buy one ton of urea, while now that ratio is already 1.65. But, when the discount for export withholdings is applied, the cost becomes even higher, andThe ton of urea rises to 2.17 “real” tons of soybeans.
It is this panorama that leads some analysts to question how strong the expected “rain of dollars from the countryside” will be in the second quarter. It happens that, as always happens in these situations, those who sell first are those producers most urgently required to pay off financial obligations, but the rest speculate on the possibility that there will be some relief that will improve their business equation.
This improvement can come in two ways: or the peso is devalued or a temporary cut in withholdings is made. The first possibility seems distant today, given that the government needs to buy foreign currency to accumulate dollars with which to meet its payment schedule, and that is why it encourages the persistence of a low exchange rate.
Regarding tax relief for agricultural producers, there are both political and economic limitations. To begin with, the US government asked Caputo, when it gave him financial assistance before last October’s elections, not to repeat events like the “tax holiday” of September. And, furthermore, income from export withholdings is something that the minister cannot afford to do without, in a context of weak tax collection, which has already had eight consecutive months of year-on-year decline.
What’s coming
Looking ahead, there are slight prospects for dollar inflation to decline. At least, if the projection of the Central Bank’s REM survey is taken as true. The economists participating in that survey predict that in the remainder of the year there will be an additional inflation of 19%, while The exchange rate will be around $1,700, which implies that the price would rise by 22%.
If this scenario were met, then the prices of the Argentine economy, in dollars, would fall by 2.5%. A modest figure that, by the way, would not be enough to compensate for the increase in prices that occurred in the summer, but an improvement nonetheless.
Of course, there is also the possibility that the exchange rate evolves at a slower rate, if the increase in investment flow predicted by the government is fulfilled and, according to Javier Milei, to the Central Bank “dollars will come out of your ears.”
In any case, what is undeniable is that the debate over the exchange delay and the usefulness of the cheap dollar as an anchor of prices is, for the umpteenth time, occupying the center of the national economic debate.
