​Inflation remains rampant

ARGENTINA - In Brief 16 May 2022 by Esteban Fernández Medrano

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Although April National CPI inflation of 6.0%m/m showed a mild decline compared to the surprising 6.7%m/m of Match. This moderate deceleration is to a large extent explained by seasonal factors. Annual inflation remains in an upward trend, closing in April at 58%y/y, compared to 55.1%y/y the month before. And based on last month´s inflation data, the implicit annual inflation (if the government were unable/willing to take credible/effective anti-inflation measures) would rise above 90%y/y. Estimating inflation acceleration The chart below compares the 2022 monthly inflation data, subtracting the average monthly inflation rate of the preceding 12 months, and compares this result (red line) to the 2018-2021 monthly averages calculated the same way (black line). It shows that the decline of CPI in April is roughly aligned to what should have been expected because of a mere seasonal inflation drop in April, yet with a much higher underlying trend inflation than the theoretical black line. The following chart shows the results of calculating such underlying trend inflation, using the spread between the observed and the theoretical value. Annualizing that spread and adding it to the observed annual inflation rate, provides the blue line, which indicates what implicit annual inflation rate would theoretically be compatible with a given (observed) monthly inflation rate. Although the peaks of the blue line tend to overshoot the upcoming inflation levels (red line), among others as the government tends to take anti-inflation policies when inflation starts to rise (even if largely based on micro-economic policies to control macro imbalances), it is still a valid leading indicato...