High inflation dampens news that Senate Commission approved treatment of IMF agreement

ARGENTINA - In Brief 16 Mar 2022 by Esteban Fernández Medrano

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As anticipated, the Senate Committee on the Budget approved yesterday that the IMF agreement will be sent to the upper house to be voted on tomorrow, Thursday. The political support was ample, with 15 votes in favor and only 2 dissidents. As said before, such a pragmatic position of the Committee is aligned with the Governors' influence in the Senate and their desire to limit the risk of facing financial distress in their provinces. It reaffirms our base-case scenario that the bill should be approved this week. February CPI in line with 70% inflation? But February's National CPI inflation of 4.7%m/m, with strong hikes in food prices, reverting the previously declining annual inflation rate, and reaching 52.3% y/y, anticipates the macroeconomic difficulties that the economic program will face in the coming months. With the need to adjust public utility prices in 2022, continuing the upward adjustment of the official exchange rate to maintain competitiveness and the further expected impact on fuel and food prices linked to the Russian invasion of Ukraine, inflation will remain under pressure, even before considering the monetization of the fiscal deficit or the endogenous expansion due to the BCRA sterilization efforts. When analyzing the CPI composition, we observe that in February almost half of the monthly inflation (2.1% of the total 4.7% rise) and, roughly speaking, a third of the annual inflation (15.9% of the total 52.3% rise) was explained by food prices alone. In fact, when analyzing the CPI diffusion index (how generalized inflation is), despite the strong rise in the monthly headline number, February’s diffusion index dropped somewhat, suggesting that fewer se...