The consultants anticipate that inflation in 2021 will be around 50%. However, the Government set another objective in its roadmap
Martin Guzman He is convinced that he can achieve the goal, but in the City they do not believe him. The consultants have another diagnosis. The minister aims for inflation in the first quarter to be in the single digits. That it remains below 10% between January and March. For this reason, the economic team works on different price agreements to arrive at that slogan.
The divergence between Guzmán and his colleagues at the consulting firms is not new. It was reflected in the papers in September of last year, when the minister made official that his inflation target for this year would be 29%. From that moment the crack opened.
The consulting firms assume that inflation 2021 will hover around fifty%, according to the survey that the Central Bank organizes monthly. That is, far from the most optimistic view of the minister.
The first challenge for Guzmán is to ease inflation in January. After a hot year-end, the first month of the year should show a significantly lower number. “No more than 3.5%,” says an official from the economic team to iProfesional, after acknowledging that the December jump left an inevitable drag for this start of 2021.
The initial strategy to slow down inflationary dynamics is “manual”. Sectorial price agreements and arm wrestling with some niches that have their prices regulated, as in the case of telephone services, internet and private medicine.
Separate paragraph for rates of light and gas, which have been frozen since the beginning of 2019 and start the year to go through a new electoral campaign without (big) changes.
The other variable that will have to be closely monitored is the exchange rate. The Government has been proclaiming that the economy needs a price of the dollar to accompany inflation, in order to maintain competitiveness.
With the inflationary acceleration it was more difficult to maintain this conception. For example, in October – when inflation was 3.8%, the official dollar rose 3.1% -. In November it was almost at par: the price index fell to 3.2%, the dollar advanced 3%. In December, with inflation close to 4%, the greenback climbed 3.4%.
Measures to cool inflation
“The big bet this year is that wages beat inflation,” Minister Matías Kulfas said Thursday morning in radio statements.
The main concern of the officials refers to the dynamics in food prices. For an obvious question, that without this brake there are no chances that wages will increase their purchasing power. And, also, for a political reason: if the increases in food are not cooled, there is no chance of an arrangement with the CGT so that the claims salary for this year they are aligned with the inflation set by the Minister of Economy, of 29%.
In the last two weeks, the Government made decisions with the precise objective of reducing inflationary dynamics. There was everything: voluntary agreements with the companies (Careful Prices, with an average increase of 5.6% for 660 products of the basic basket) and unilateral decisions, such as the decision to reverse the already announced 7% increase to February in private medicine.
And there will be more:
The government is giving the latest definitions to what will officially be announced as the “Care Prices” program for meat.
During the last week, negotiations with meat processing plants intensified to agree on prices for the main cuts of beef.
The official objective is for the program to have between 10 and 12 cuts called “popular”, which are the most consumed at the family table: among which will be included roast, vacuum, slaughter, minced meat, shoulder, meat and cuts for Milanese , among others.
In the official drafts it appears that they will have an average discount of 25% with respect to the current values in butchers and supermarket chains.
This is a reduction that would serve to roll back the latest increases in meat prices, especially during November and December.
It is also already scheduled that, after the 5% enabled for this beginning of the year, the internet service, telephony and pay TV will only increase again next March. And not in February, as the companies in the sector claim.
Again, around 5%. The companies demand that a higher increase be allowed for the “premium” plans, something that the Government could grant.
That is, for next month there will be no adjustment.
The Casa Rosada works with the idea that the cost of telephony and Internet has become a sensitive point, beyond the pandemic. And it is not willing to allow price increases that rob other sectors of the real economy.
Due to the freezing of rates and the rise in the dollar, the subsidy account has been growing at a strong rate
What about the fees
Along with the foods in the basic basket, the case of utility rates appears as the heading key -and not only because of its macro determination, given the level of subsidies it involves and the influence on family income- but also because of its political setting.
To ensure a first part of the year with the lowest possible inflation, the Government extended the rate freeze until the end of autumn. At least.
Due to the freezing of rates and the rise in the dollar, the account of subsidies has been growing at a strong rate.
In the first 10 months of 2020, spending on economic subsidies grew 110.2% year-on-year. Last year, $ 267.6 billion were spent in economic subsidies in the same period. This year the sum reached $ 562.4 billion, between January and October (2.07% of GDP).
According to the Congressional Budget Office, it is estimated that spending on economic subsidies will reach 2.2% of GDP in 2020.
On the issue of electricity and gas rates, Alberto Fernández already mentioned that “the State must continue to subsidize the social rate.” But he warned that there is another group in society that “can continue paying according to the increased cost of living” and “another group that can pay the full rate.”
There is still no definition on this issue, which goes beyond the freeze until March, inclusive.
It is also unclear whether the government will attempt tariff segmentation, something that the Secretary of Energy, Darío Martínez, had made explicit, but whose details have never been revealed, until now.
What is clear is the tension that the issue generates inside the Palacio de Hacienda, with a minister Guzmán who had proposed keep the level of subsidies unchanged in relation to GDP.
Right in the middle of a negotiation with the Monetary Fund, and a tough discussion about the fiscal guideline for this year, the minister tried to have something defined already for this time of year. With the upcoming electoral campaign, any approach to the fiscal issue will be more complicated.
For this reason, the topic inflationary takes more relevance. For the eminently economic, but also for the political impact. The Casa Rosada wants to show a recovery -although it is not minimal- in the purchasing power of salaries in the electoral year.
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