Argentina’s inflation up to 288% in March, but central bank cuts rates on ‘pronounced slowdown’

SAO PAULO (ICIS)–Argentina’s annual rate of inflation rose to 287.9% in March, up from 276% in February, the country’s statistical agency Indec said on Friday.

Month-on-month, the Consumer Price Index (IPC in its Spanish acronym) rose by 11.0%, a slowdown from the 13.2% monthly increase posted in February.

It was the monthly slowdowns what prompted the country’s central bank to cut interest rates earlier this week.

In the current inflation crisis, monthly price rises peaked in December, when the new government’s peso devaluation and the initial withdrawal of some subsidies caused prices to spike. It has been falling for the past three months thereafter.

ARGENTINA MONTHLY INFLATION RATE
In % change

Source: Indec

Some of the price increases in March, month on month, hit directly into consumers’ pockets, with squeezed Argentinians already stepping back from any big-ticket purchase.

This, in turn, is causing a steep downturn in manufacturing, confirmed both by petrochemicals sources in Argentina and official statistics.

“[In March, compared with February] The division with the greatest increase in the month was education (52.7%), due to the increases in fees at the start of the academic year. They were followed by communication (15.9%), due to increases in telephone and internet services, and housing, water, electricity, gas and other fuels (13.3%), due to increases in electricity service,” said Indec.

“The division with the highest incidence in all regions was Food and non-alcoholic beverages (10.5%). Inside the division, the increases in meat and derivatives, milk, dairy products and eggs, vegetables, tubers and legumes, and bread and cereals.”

ARGENTINA ANNUAL INFLATION RATE
In % change

Source: Indec 

UNORTHODOX CENTRAL BANK
In Argentina’s beleaguered economy, the old rulebook of economics may have stopped applying some time ago.

The rulebook says that, to fight high inflation, central banks will increase borrowing costs to depress consumption and, with that, hopefully lower prices as firms compete for lower demand.

Despite Argentina’s runaway annual rate of inflation, its central bank decided this week to lower interest rates to 70%, from 80%.

“After the initial correction of relative prices in December 2023, a pronounced slowdown in inflation is observed, despite the strong statistical drag that inflation carries in its monthly averages,” said the Banco Central de la Republica Argentina (BCRA).

“More frequent price surveys have been useful to appreciate end-to-end monthly dynamics. In the coming months, measurements of underlying or core inflation will take on greater relevance in the diagnosis of the trajectory of inflation, in view of the announced adjustments to regulated tariffs for public services.”

The bank was referring there to the withdrawal of several subsidies for companies and households alike which, in view of the new Argentinian government of Javier Milei, distorted competition and the economy.

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