Milei is confident that inflation will go down in Argentina, analysts are skeptical

“For the first half of the year, inflation will be in single digits,” the Argentine Minister of Economy, Luis Caputo, said weeks ago during a television interview. It is, as they recognized from the Government House, the same message that President Javier Milei seeks to print both in public and in private.

From the moment the libertarian took office as president in December of last year, he launched a program of state restructuring and deregulation of the economy which aims to reduce the size of the State, cut public spending and end the fiscal deficit that has accompanied Argentina for years, Milei himself repeatedly explains.

The government is excited that official statistics will begin to accompany the presidential speech. Price increases moderated for the second consecutive month in February and reached 13.2%, translating into year-on-year inflation of 276.2%. In January the consumer price index (CPI) had been 20.6% and in December 25.5%, the highest figure in three decades.

Despite this trend, different specialists consulted by the Voice of America They were cautious when analyzing the direction of the Argentine economy.

“Inflation slowed in February, but there are no signs that it will continue to slow in March, which is also a month of high seasonality,” said Micaela Fernández Erlauer, senior analyst in the economics area at Fundar, a research and design organization. of public policies.

Along the same lines, Leandro Mora Alfonsin, an economist specialized in productive development and former national director of Industrial Policy, assured that “it is not at all certain that the country is on a path where inflation will be increasingly lower; “Argentina maintains a system permeable to shock that does not allow us to claim victory now.”

The government program, between support and caution

“In just three months we adjusted 11 points of the Gross Domestic Product (GDP), unique in the history of the world,” President Milei emphasized over the weekend during an interview in Radio Miter.

This cut focused on completely stopping public works, laying off employees and correcting prices that were regulated or subsidized by the State, among other measures.

At this point, all the specialists consulted by the VOA They agreed that “to achieve control inflation in the long term It is necessary to reduce the fiscal deficit, public spending, not depend on financing from the central bank and achieve a surplus – which is collected more than what is spent -“, explained economic analyst Damián Di Pace.

“Correctly, the government is proposing an economic program with two anchors,” said Fernando Marengo, chief economist of the consulting firm BlackTORO Global Investments, and then detailed: “The first is the fiscal one, where it seeks to increase income and lower expenses; while the second is exchange rate, where Milei seeks to stabilize the price of the dollar in a country where prices move due to the exchange rate.”

The price of the free dollar in Argentina is practically at the same level as five months ago, while the official exchange rate of the peso to the dollar suffered a devaluation of 54% in December.

From that moment it remained practically unchanged, which made Argentina once again become a country with high costs in dollars, very different from what happened last year, the specialists understood.

“All the advertisements and the end of year devaluation “They quickly impacted prices, now to sustain the downward trend the government is postponing the adjustment of some prices that were regulated such as public transportation, services and others,” explained economist Mora Alfonsin.

In short, “the Casa Rosada made the determination not to continue raising some prices that have a direct impact on the inflation rate to try to sustain this downward trend,” added Di Pace.

The recession and the social impact of government policies

As Milei himself announced before assuming the presidency, all these measures have a direct impact on purchasing power and society.

A survey by the consulting firm Zuban Córdoba and associates showed that 69.8% of Argentines consider that their personal economy is worse since December, while 24.7% believe that it is the same and only 5.4% understand that it's better.

Along the same path, the Union of Workers of the Popular Economy (UTEP) union assures that more and more Argentines have to go to community kitchens to have a plate of food.

For its part, the Social Debt Observatory of the Argentine Catholic University (UCA), a private study house that has been evaluating the progress of poverty and indigence in the country for decades, warned that nearly 60% of society can become poor in March.

The last official poverty index was published in September of last year and showed that 40.1% of society is poor. The next report corresponding to the second half of 2023 will be published on March 27.

“Milei faced a very deteriorated economy, where there was work, but it was not enough. People had to have different jobs to reach an average income,” explained economist Mora Alfonsín, adding: “The problem now is not only the return on money, but also having that money to cover the basic basket, something which many times does not happen.”

For his part, Marengo explained it as follows: “Argentina is facing a recession as a consequence of the fiscal and monetary adjustment where there are no pesos to buy dollars, but there are also no pesos to demand goods, which cools the economy.” This dynamic, in his view, “helps generate price control.”

Both the national government and specialists know that inflation is one of the main concerns of Argentines. That is why they closely observe the progress of price indices and, at the same time, use it as an indicator to measure the degree of support for President Milei.

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