Inflation is becoming a political nightmare

ARGENTINA - In Brief 13 Apr 2022 by Esteban Fernández Medrano

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Worldwide, the latest inflation indices have been reflecting a new global problem, based on rising energy and food prices, as the supply side shocks triggered by the Russian invasion of Ukraine spread across the markets. Yet, Argentina is not only not isolated from this problem, but also, on the contrary, due to its weak anti-inflationary stance and the need to readjust relative prices in utilities and its dubious monetary policies, faces an amplification of this global problem. Inflation, which has been an ongoing problem, is rising in scale to become a political nightmare for the government. It puts further pressure on the already strained relationships inside the ruling coalition.Aware of this problem, Economic Minister Martín Guzman tried to do some damage control, anticipating on Tuesday (a day before the actual CPI publication), that March National CPI would be above 6% m/m, but that this would be the highest monthly inflation rate in 2022. The market adjusted its expectations to close to 6.2/6.5%. Still, today´s publication of the March National CPI, at 6.7% m/m surprised the market. Compared to the historical CPI of the Greater Buenos Aires Area, this monthly result is the strongest one-month inflation data since April 2002 (10.2% m/m), and specifically for March, the highest rise since March 1991 (11.0% m/m), i.e., close to the end and the start of the Convertibility, two historical periods of macro instability. From merely seasonal effects, Guzman might keep hopes high, in the sense that March is indeed the second-highest inflation rate of the year, after September. But considering the price adjustments that must be made in public utilities, the path-through ...