Like the heat in the austral summer, inflation in Argentina is high and showing no sign of meaningful relief anytime soon. It rose from a monthly 13% in November to 25% in December and, according to the latest central bank survey, may come in at around 20% in both January and February… Argentina’s central bank in
The post Why it is difficult for Milei to reign in inflation appeared first on Marginal REVOLUTION.
Like the heat in the austral summer, inflation in Argentina is high and showing no sign of meaningful relief anytime soon. It rose from a monthly 13% in November to 25% in December and, according to the latest central bank survey, may come in at around 20% in both January and February…
Argentina’s central bank in December lowered real interest rates to deeply negative territory, hoping to reduce the issuance of pesos to pay for those interests—a move that pushes consumers to spend or dollarize their savings, adding to inflation and to the exchange rate premium. In addition, the early lifting of price controls, including administered prices such as health insurance or gas, frontloaded the relative price correction at the expense of inflation.
All this, combined with the lack of a price reference—the central bank is still working on its monetary program—may have led to a so-called “repricing overshooting.”
And:
Moreover, if inflation persists, the December devaluation may soon look insufficient, feeding expectations of a new realignment that, in turn, would give inflation inertia a new push—ultimately leading to a stop-and-go exchange rate pattern that sacrifices the only remaining nominal anchor of the economy.
Add to that that a large portion of the fiscal plan has just been withdrawn from the Omnibus Bill currently under heated debate in Congress, and we are left with only one bullet to bring monthly inflation back to single digits in the near term: a severe—and politically fraught—economic recession.
That is all by Eduardo Levy Yeyati, there is much more and the piece is useful throughout.
The post Why it is difficult for Milei to reign in inflation appeared first on Marginal REVOLUTION.
Current Affairs, Economics
Leave a Reply