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The South American country recorded annual inflation of 94.8% in 2022, the highest level in 32 years and one of the highest in the world, the INDEC Statistics Institute reported on Thursday. Lowering inflation may prove decisive in an election year.
Argentina ended the year 2022 with an annual inflation of 94.8%. The consumer price index registered a rise of 5.1% in December, far from the 7.5% in July, but above the increase of 4.9% in November.
“The first objective that the Minister of Economy, Sergio Massa, set for himself when he took office (in July), was that inflation would not be three digits at the end of the year -as some consultants were forecasting-, and that he would consider reductions important bimonthly, we understand that this objective is being met,” declared the presidential spokesperson, Gabriela Cerruti, after knowing the data.
The items that suffered the greatest price increases were clothing and footwear, with 120.8%, and restaurants and hotels with 108.8%. Meanwhile, among the least high in the rise are communication (67.8%) and housing and public services (80.4%).
This level of inflation had not been recorded since 1991, when there were year-on-year increases of more than 100% in several months, after two years of hyperinflation of more than 1,000% in 1989 and 1990.
The third largest economy in Latin America is immersed in chronic inflation, in double figures for a decade, a phenomenon with multiple causes, both internal and external.
To try to contain inflation, the government of Alberto Fernández (centre-left Peronism) launched a “Fair Prices” plan in December, an agreement with food and hygiene companies aimed at freezing the values of some 2,000 basic necessities until March and authorize monthly increases of up to 4% for another 30,000 items.
“What would seem to be the classic solution to an inflation problem, such as a fiscal adjustment, of State spending, has generally not been considered the first option. So, what the government has been doing to alleviate inflation is a kind of price agreement, especially with supermarkets, which includes this Fair Prices program. That has been the figurehead of what the government’s economic issue is, it has also raised interest rates a bit. That said, the Government has made adjustments in spending, for example, raising rates below inflation. And another strategy that the Government has carried out is to delay the price of the dollar of the foreign currency, somewhat artificially”, explains Juan Negri, professor of Political Science at the Torcuato di Tella University, to RFI.
In an election year, with presidential elections in October, the government will face the challenge of “fighting inflation and ordering spending without cooling the economy or proposing painful adjustments,” the Economy Minister, Sergio Massa, admitted days ago.
“The government walks through a gorge that is, on the one hand, showing a substantive drop in inflation. It could be a very important political asset for the election, but at the same time a cut in spending, that is, an orthodox package, would be very poorly received by the population. The government has decided, it seems to me, to lower inflation that is noticeable, but not dramatic, since it is something like that in the order of 3 or 4% per month, which is still high by international standards. I think it is necessary to remember that the Minister of the Economy, Sergio Massa, is the candidate with aspirations in the ruling party, so a drop in inflation is important for him as a way of positioning himself in the presidential election, ”says Negri.
Argentina ended the year 2022 with an estimated growth of 5%, after an expansion of activity of 10.3% in 2021 that ended three years of recession.
In 2023, growth of 2% is expected in the South American country, within the framework of a general slowdown in the world economy. It is, however, one of the highest levels in Latin America, according to World Bank forecasts this week.
But despite a sustained recovery and falling unemployment (7.1%), wages lagged behind inflation, with strong losses in purchasing power.
Thus, many Argentines fell into poverty, which affects 36.5% of the population of almost 47 million inhabitants.
Argentina maintains a credit agreement for 44,000 million dollars with the International Monetary Fund through which it committed to increase its international reserves and reduce the fiscal deficit from 3% of Gross Product in 2021 to 2.5% in 2022, 1.9% in 2023 and 0.9% in 2024.
