Argentina fails to tame stubborn inflation

Argentina significantly overshot its inflation target in 2017 as prices rose around 25% from the previous year, raising questions about the country’s ability to tame a problem that has plagued it off and on for decades.

Consumer prices surged 3.1% in December from the previous month, pushing the annual inflation rate to 24.8%, far beyond the central bank’s target of 17%. The City of Buenos Aires measured inflation at 26.1% - in line with private estimates.

Last month, officials relaxed the inflation targets for the next two years, acknowledging they have been unable to combine stronger economic growth of about 3% last year with a significant decline in the inflation rate.

Consumer prices have meanwhile risen by 85% since Macri took office, while average wages have done so by around 70%.

The problem has been compounded by a decision to raise public utility rates by up to 1700% since March 2016, which the right-wing Mauricio Macri administration defends as a way to cut $4 billion of dollars in subsidies.

The nation's budget deficit, however, has more than doubled in peso terms since Macri took office in late 2015 as tax cuts for agroexporters, mining, and other sectors erode revenues.

Record interest payments - some $15 billion in 2017 alone - have also pushed budget deficits upward mainly due to the issuance of LEBAC 30-day bills, which until December yielded around 13% in dollar terms.

A record, $27 billion LEBAC maturity on December 18 was largely redeemed (63%) rather than rolled over. The resulting purchase of dollars, whose trade was deregulated by the Macri administration, devalued the peso by 10% in a week, from 17.50 to 19.50.

Consumer prices, accordingly, are expected to rise another 4% in January alone.

At: https://www.wsj.com/articles/argentina-fails-to-tame-stubborn-inflation-1515708458