why inflation of the poor was higher / Argentina News

The constant price increases that occurred during 2020 hit the poorest sectors hardest. The reasons

The year 2020 closed with a average inflation of 36.1%. However, it is a number that generalizes different and very disparate situations in Argentina.

In fact, the inflation that the poorest sectors had to bear could have risen to 48%. Meanwhile, for families with higher incomes, the advance in prices would have been in the order of 30% or less.

Why inflation hit the poor hardest

During 2020, foods had an advance above the average for inflation. They became more expensive by 42.1% during the last 12 months and have a high impact on basic product baskets. For a typical family, married couple and 2 minor children, the poverty basket would have reached $ 55,000 in December.

Until November, the indigence line in the Metropolitan Region increased by 38.4% and the poverty line by 32.9%. With the jump in food prices in December, It is estimated that the poverty basket could have closed the year at around 40% and the extreme poverty basket at 48% or moreClarín points out.

In the basic food basket, the food products that increased the most in prices and that weighed the most in the basic baskets predominate. For example, In December, in Capital and GBA the price of potatoes had an increase of 6.7%, banana 10.8%, chicken 16.1%, roast 28.5%, common minced meat 10.9%, buttock 20% , apple 7.4% and orange 22.1%.

In addition, while food and non-alcoholic beverages have a 23% impact on the Consumer Price Index for Capital and the suburbs, the food products that make up the total basic basket represent 33%.

Consequently, these price increases and the higher incidence of these foods in the food basket determine an increase much greater than the CPI Capital and GBA that, in food, in December it was 4.4%.

This was manifested in a notorious way last October when food increased 4.8% in the Metropolitan Region and the poverty basket climbed to 6.6% and that of poverty to 5.7%.

If the indigence line that up to November increased 38.4%, in December it would have risen 6%, it would close the year with 46.7%. While with a rise of 7%, it would reach 48%.

Food prices soared above the general level of inflation.

Inflation, lower for the richest

Although INDEC does not measure the “inflation of the rich”, an approximation arises from comparing the average inflation of the City of Buenos Aires – where sectors with better resources reside in a greater proportion – with that of the NEA, a region that it includes Chaco, Corrientes, Formosa and Misiones, with higher indigence and poverty rates.

The Department of Statistics and Censuses of CABA reported that average inflation in 2020 was 30.5% compared to 42.4% recorded by INDEC in the NEA. But the basket of homelessness in CABA amounted to 43.9%, which would surely lead the NEA to exceed 50%, says Clarín.

Inflation: this is how prices rise in January

The 4% rate of inflation The last month of 2020 did not surprise the economists of the main consulting firms or the Government itself. It was the expected number, in the context of an inflationary acceleration typical of the reopening of activities in the middle of the pandemic, and in the midst of the strong rise in fresh food: basically meat, fruits and vegetables.

How did the year start? What happened in the first two weeks of January? What can happen in the next few weeks? Is the most likely scenario an acceleration of the upward dynamics of the prices?

The consulting firm LCG -founded by Martin Lousteau– tests the evolution of food prices on a daily basis. A sample of 8,000 products.

The last measurement, closed simultaneously with the diffusion of December inflation, marked that in the second week of the month a 1% rise in food was registered, which followed the 1.2% of the initial week.

“The progress data of the LCG Index for the first two weeks of January they show a food inflation of 4.3% per month. Thus, we expect another high monthly inflation record for the first month of the year, around 4% per month “.

The last survey marked increases in meats, fruits, vegetables, but also in dairy products.

The mention of 4% of LCG for January is similar to that formulated in other private consulting firms, who agree that in the Argentina inflation is accelerating.

private consulting firms, who agree that inflation is accelerating in Argentina

Several private consultants agree that inflation is accelerating in Argentina

It is what Martin Guzman wants to prevent. The minister, as already published iProfessional, aims for inflation in the first quarter of the year to be less than 10%.

The Secretary of Internal Trade, Paula Español, acknowledged in the last hours that in January there was a “drag” from the high inflation of December. But he declined to give a forecast on the final number for this month.

The consulting firms assume that inflation in 2021 will be around 50%, according to the survey that the Central Bank organizes monthly.

“Even using all anchors, except the exchange rate, inflation sailed around 3.7% per month in the last three months, which is equivalent to an annualized rate of 54%. It is an inertia that worries, gives uncertainty and it does not help the convergence of inflation expectations with the Government’s objectives, “says Guido Lorenzo, director of LCG, in the latest report on inflation.

Guzmán has other plans. And another forecast.

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 electricity and gas rates, 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.

Guzmán's strategy includes sectoral price agreements and arm wrestling with some niches that have their prices regulated

Guzmán’s strategy includes sectoral price agreements and arm wrestling with niches that have regulated prices

With the inflationary acceleration it was more difficult to maintain that 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%.

Therefore: in addition to the price containment strategy, the central bank It could appeal – if necessary – to a subtle slowdown in the evolution of the exchange rate. It is clear that there is not much room to do so without this move adding tension in the foreign exchange market.