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4/17/18

Macri has not brought Argentina's inflation rate under control

The following is from IKN465 last weekend, an expansion on the fact that despite the way the subject has mysteriously dropped off the world's financial agenda (now CFK is not longer in power), Argentina's inflation rate remains stubbornly high and President Macri has failed to make the type of meaningful difference he promised. That could mean serious trouble for the Macri administration down the line, as history has ample evidence that Argentinians will only suck up a certain amount of austerity policies before pushing back. And hard. 

Read on.



Argentina inflation: Do not underestimate this issue
Not a mining subject, but anyone considering investment exposure to Argentina needs to consider this angle. It’s not easy getting an accurate historical read on the inflation rate in Argentina, firstly because it’s high and statistically that means even small margins of error compound into large ones over time. Secondly because the official INDEC stats people were obviously BSsing the world in the Kirchner years.

However, we can get a reasonable approximation using a hybrid of sources since the country’s financial crash in 2001. In the first period we rely on private consultancy data, that goes to 2012. Then in the period 2012 to 2016 there’s something called the “Inflación Congreso”, a database set up by the National Parliament (started by the anti-Kirchner parties) which gave an alternative set of figures to the official and way underestimating INDEC numbers. Then the last two years we can go back to the official INDEC body because though still likely biased towards the sitting government, it’s become fairly reliable. Put those together and this is what you get:




For what it’s worth, the highest peaks in 2013 and 2016 are likely BS, at that time Congress was equally guilty of propaganda as Cristina Kirchner’s people. But the rest of the data, taken as a whole, gives a decent enough snapshot and we see that inflation has revolved around the 25% annual figure for a full decade.

So to the point of this piece, THIS IS TRUE FOR THE MACRI GOVERNMENT AS WELL. It’s unsurprising that your people up North don’t hear about the rampant inflation any longer, what with the biz friendly/FDI friendly/financially orthodox Macri in power. But inflation hasn’t gone away despite the current government making it a linchpin of its macro policy to drive it down. Last year the inflation target of 18% max was roundly beaten. This year the inflation target was set at 15% and with the data just in for the first quarter (+6.7%) and the annual projections of private buffets at 25.2%, we even have Macri saying (16) they want to be “as close to 15% as possible”.

The big problem for us looking on is that inflation targeting is the central point of Macri’s austerity plan. Under CFK wages kept track of inflation, but Macri’s deal with Argentina has been 1) you get wage rises under the rate of inflation 2) this will help bring inflation down 3) in the longer term we’ll all be better off when inflation is low. Due to this, the population as a general entity has take a pay cut in real purchasing power terms and that’s okay for a while, the Macri model can promise jam tomorrow for a while, but patience is already wearing thin and late last year saw the first real and major union-backed national strike protests due to the degradation of the family budgets.