Sun. Apr 5th, 2020

Inflation in Argentina soars in August due to the financial crisis

Inflation in Argentina shot up 4% last August, when consumer prices were fully impacted by the escalation of the dollar price, one of the most damaging consequences of the financial crisis unleashed after the primary elections.

As reported on Thursday by the National Institute of Statistics and Census of Argentina, last month consumer prices registered a year-on-year increase of 54.5% and accumulated an increase of 30% in the first eight months of the year.

The 4% rise compared to July – that month had been 2.2% – marks a break in the deceleration trend that the indicator had been showing since last April.

The official report released today reveals that food and non-alcoholic beverage prices rose 4.5% in August.

The August inflation figure clearly shows the effects of the severe financial turmoil unleashed after the primary ones last August 11, in which the Argentine president, Mauricio Macri, suffered a severe setback by obtaining 31.79% of the votes, sixteen points less than the Peronist Alberto Fernández, favorite for the elections of October 27.

The adverse reaction of investors to that electoral result meant a sharp rise in the price of the dollar in the local exchange market, of 27.8% accumulated in August, which quickly moved to other prices in the economy.

To try to alleviate the effects of this phenomenon, the Macri Government announced some measures, such as temporarily freezing fuel prices – a good that strongly affects production and transport costs – and eliminating the value added tax (VAT) for some foods from the basic basket.

According to a report by the consultant Ecolatina, this last measure meant that the goods reached by the VAT removal registered a deflation of 0.8% in August, while those not included in the tax reduction experienced an average price increase of 7.5%

The consultant Elypsis, which also performs its own inflation measurements, agrees that the reduction in food VAT contained many prices, which rose less than expected according to its behavior in previous devaluations.

"But in the last week of the month there was some acceleration. In September, the drag that August leaves, the increases in services that are less prone to immediate transfer, and the adjustments of those goods that were contained will be impacted. The final increase will depend on the success that the Government has in stabilizing the dollar, "the consultant warned in a report.

Consumer prices already accumulated an increase of 47.6% last year, the highest level since 1991, and now, with the tsunami unleashed in August by the earthquake in the markets, an even greater number is expected for this year.

The experts that month to month consult the Central Bank for their report of expectations project an inflation of 5.8% for September and 4.3% for October.

Although the index would decelerate to 3.4% for December, 2019 would close with a cumulative inflation in the year of 55% – more than double the target included in this year's Budget – and fall to 38% in 2020.

The high inflation that Argentina records is in a context of economic recession, with a 2.5% drop in activity in 2018, one of the worst performances in years and that would be repeated in 2019, according to the projections collected by the Bank Central.

The aggravation of the crisis has increased the protests of social organizations in the streets, where they demand that the food emergency law be extended, which received approval Thursday in the Chamber of Deputies and should now be debated by the Senate.

In a speech before members of the Professional Council of Economic Sciences of Buenos Aires, Macri reiterated today that the "uncertainty" experienced from the primary "impacts on macroeconomics and prices."

Above all, he said, "it had an impact on the pocket of many families, which are finding it increasingly difficult to make ends meet."

"From the Government from the first moment we have taken charge of this situation and we are taking all measures to bring peace and stability," said the president.

Natalia Kidd

. (tagsToTranslate) inflation (t) Argentina (t) shoots (t) August (t) financial

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