January starts with bad news
Consumer price inflation in December was 3.8%, up from 2.5%
in November, and the prospects for January are still worse. The monetary base
has been expanding at 12% per month since the beginning of December. The
Central bank has increased the interest rate and the pace of adjustment of the official
exchange rate but timidly, still much below the rate of inflation. After the
meeting of the Economic Minister with governors and some parliamentarian
leaders, the expectation of an agreement with the IMF in the course of the first
quarter waned. It became very clear that the government has decided not to
commit to a stabilization plan because it considers that a fiscal adjustment
would interrupt the strong recovery of the level of economic activity currently
under way. The risk premium jumped from 1.703 by the end of December to 1.835
on January 12. The uncertainty about what will happen during 2022 has increased. Conflicting opinions within the government and even within the opposition
on how to address inflation and loss of credit, do not help in creating at least
some favorable expectations for the medium term.
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