Exchange rate differential, drought, inertia and heat wave: why the Economy estimates that inflation accelerated in February

The Ministry of the Economy considers that the inflationary acceleration which took place in February was definitely marked by a combination of effects crusaders: the droughtwhich has had an impact on the price of meat and dairy products, a exchange difference which penetrates more and more generally into the price system, a inertia more and more difficult than drilling, a group of goods that left the control system and increased above forecast and even of hello heat which they say has had an effect on some fresh produce in particular.

The economics team dug in after the February inflation data released by INDEC to do damage control and analyze what numbers, variables and items that were left off its radar explained the sharp jump in inflation. inflation in February, which marked a 6.6%but especially the kernel index (7.7%)which marks in a more crystalline way, excluding regulated or seasonal goods and services, what is the behavior of the price rhythm.

In the official dispatches, they noted, in this sense, that the element which most decisively explains the inflation of 6.6% in February was the average increase in the 21.5% meat and derivatives, which account for 10% of the Food & Beverage category total. In fact, they asserted that if this one-time increase had been taken out of the equation, the CPI would have been below 6 percent.

The spike in meat prices has been attributed by the economics team to a direct effect of the drought. “At the time, there was an oversupply of meat and now it’s missing“Summarizes a senior source from the Ministry of the Economy. “We had a drop in supply it had an impact on prices,” he said. They also attribute similar behavior in dairy products to this same factor. One official also noted, by way of further explanation, that the hello heat of recent weeks has had an impact on the production of fresh produce, with its correlative effect on prices.

There is another element that has had an impact, although to a lesser extent: a group of goods that have ceased to be part of the fair price control program in the new phase which began last month. “went out” with higher increments than expected by the Ministry of Commerce. They came to detect, in this set, comments that revolved around the 9 percent.

Unlike the traditional channel, the department store channel has a more efficient compliance inspection system. For the neighborhood shops and stores the flow of information and the penetration of controls are more glassy and this creates a vacuum.

Another deviation which more decisively has had an impact on the price system is the exchange rate. In the economic team, they ensure that the monetary question which has been accompanied by the soybean dollar had a “first impact on the parallel dollars and that leak to prices”. Secondly, this increase in the spread also penetrated expectations and price formation.

For the moment, the Ministry of the Economy considers that the inflationary inertia is increasingly difficult to perforate. “We have to work for can break it“, they assured. Moreover, they choose for the moment not to recalculate the annual inflation target, 60%but they recognize that their possibilities for effective compliance are in doubt after the first two monthly inflation data.

For this reason, they argue, maintaining 60% responds less to an indication of a viable goal throughout 2023 than to the existence of a figure acting as a benchmark. suction. Thus, its weight as a “goal” itself becomes less constraining. “We are aiming for a 3% per monththey insisted, although they mentioned not having a predetermined roadmap to reach this number.

“We want come out championsbut if we classify Libertadores Cup we are fine, ”they traced from the fifth floor of the Palacio de Hacienda. And they continued, still in a footballing tone: “If a match has gone badly for you, you have to accept it, but the game system It’s good and we have to win the next one”. In the locker room, the blackboard does not mark, for the moment, that he has prepared a new game to surprise the rival.

The chalk marks that the fiscal and monetary signals that the economics team has on file are deemed sufficient. In this sense, they ensure that the objective maintain to reduce the deficit with the IMF in a context of drought – which will imply a fall in Treasury revenues due to source deductions – already serves as the first message and that more drastic gestures are not necessary. And this Thursday, the Central Bank will decide whether or not to apply its first rising interest rates in six months.

After the 6.6% marked by the CPI for February, the Deputy Minister and Secretary for Economic Programming Gabriel Rubinstein considered that “the data are undoubtedly very bad”. “Weather conditions have an impact on food production and prices, we continue to work on fiscal and monetary policies which are compatible with much lower inflation rates, as well as income policies (agreements with companies and others) that help curb the inertial aspects of high inflation rates,” he concluded.

Continue reading: