The sudden devaluation suffered by the currency of Argentina last August, a day after the primary elections, pushed the already high inflation of the South American country at its highest level in just over three decades, leaving a very gloomy scenario for the coming months.
As reported this Wednesday by the National Institute of Statistics and Censuses (Indec), the consumer price index (CPI) stood at 124.4 percent year-on-year in August.
In the eighth month of the year consumer prices grew 12.4 percent compared to July, evidencing a strong acceleration with respect to the average monthly rate of 6.9 percent that had been registered until July.
The monthly jump achieved in August was, in fact, the largest since February 1991 (27 percent), two months before Argentina adopt the “convertibility” regime between the peso and the US dollar after the hyperinflation of 1989-1990.
The increases recorded in August were generalized.
The largest increases occurred in foodwith an increase of 15.6 percent in relation to July and 133.5 percent in interannual terms, a worrying figure, since it has direct impact on the value of the basic food basket which measures the indigence line.
Strong increases were also recorded in health (15.3 percent), mainly due to increases in drug prices, and in home equipment and maintenance (14.1 percent).
Devaluation blow in Argentina
Although high inflation is a phenomenon that has been going on for years Argentina and prices had already been overheating more strongly in recent months, the jump recorded in August is directly linked to the sudden devaluation of 22 percent that the Argentine peso suffered on August 14.
The previous day, Argentina had held primary elections with a view to the presidential elections in October and in them it was the most voted force Freedom Advances (ultra-right) in a three-thirds scenario – together with the opposition coalition Together for Change (center-right) and the ruling Union for the Homeland (Peronist) -.
The sudden devaluation in the official exchange rate, which the Government of Alberto Fernández attributed to a requirement of the International Monetary Fund (IMF), immediately translated into an increase in the value of the dollar in the parallel quotes that many sectors of the economy follow to set prices for all types of goods and services.
“Prices had already been showing an acceleration since the second half of July, but there was an additional change in dynamics after the jump in all exchange rates on August 14. This meant that, comparing the last week of the month against the same week in July, there was an increase of 14.7 percent, much higher than the average figure for the month,” observed the consulting firm C&T in a report.
He devaluation blow and its expansive wave on inflation moved the Minister of Economy and presidential candidate, Sergio Massa, to establish agreements to freeze prices on food, fuel and health services, for example, and to suspend increases in public service rates, seeking to moderate inflation rates in the months upcoming elections, which will be marked by the general elections in October.
According to official data released this Wednesday, in the first eight months of the year, inflation has already accumulated an increase of 80.2 percent.
Upward
According to the calculations of various private consultants, the August jump leaves a “carry-over effect” of between 4 and 5 points for the September inflation index, with rates forecast for this month of up to 13.7 percent.
For Lautaro Moschet, economist at the Libertad y Progreso Foundation, “the devaluation gave a jump in the nominal value of the very important economy that will probably persist between now and the end of the year.”
“To make matters worse, expectations of new devaluations will continue to put upward pressure on inflation projections and by the end of the year we will be exceeding 150 percent,” said the expert.
According to the Market Expectations Survey corresponding to last August and whose results were released this Wednesday by the Argentine Central Bankprivate consultants have revised upward their inflation projection for this year, raising it to 169.3 percent.
If this forecast comes true, it will be the highest rate recorded in Argentina since the hyperinflation of 1989-1990 and will far exceed the 94.8 percent rate recorded last year.
