​Monetae Pax II

ARGENTINA - In Brief 15 Mar 2019 by Esteban Fernández Medrano

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Although not genuinely unsurprising, February inflation data was still disappointing. The 3.8%m/m brought the annual rate to 51%y/y, accumulating 6.8% in the first two months of the year. As in January, the chief diver was not only utilities but also food. Moreover, once more a key component of that sub-index was meat (14%m/m), which is an important reference for other food prices and therefore particularly affects consumers purchasing power. The “positive” reading, of the bad February data, is that the inflation acceleration has no longer been as broad-based as in January. Alternatively said, the diffusion index dropped again somewhat. It remains still very high, but a decline in this index at least would suggest an initial bottoming out of inflation. It is also worth mentioning that the meat market has the peculiarity that if market conditions improve thought a positive shock (be it better international prices, a devaluation and/or better agricultural conditions), for that sector to increase supply in the medium term, it needs first to cut it in the short-term. Therefore meat prices tend to go initially up before supply rises. This might be a comforting thought for the medium term (after a breeding cycle of approximately one year), but it does not help to curve inflation from here to the elections. BCRA measuresTherefore in light of the disappointing February inflation data, the BCRA reaffirmed yesterday its tight monetary program, deepening and simplifying its objectives. Sandleri's announcements included:1) Extending the objective to keep M0 constant until the end of the year.2) Eliminating the seasonal adjustments to the M0 target in June (as it was done in Decemb...