July 31, 2014
The various public service price increases announced at the start of May (and the long weekend) highlight the delicate balance in the battle against inflation which is being won on other fronts. Even if they rock the boat, these increases are not arbitrary or mistaken but an absolutely inexorable correction. While the state’s newfound zeal for fuel price realism now that it possesses YPF leaves it open to ironic comment, it is also true that the pricing of the last decade must be reversed as soon as possible if Argentina’s vast shale potential is to be tapped. And while other public services are not quite as hot an overseas investment prospect, their charges are even more behind — thus it is striking that even doubling San Martín railway fares leaves them at a mere two pesos. But while two pesos remains minimal punishment for the commuter, a 100 percent increase is obviously bad news for this month’s inflation rate, especially after progress is confidently expected for April with the dollar anchored at eight pesos for the next two quarters at least.
While the Price Watch programme (which seems to be giving the supermarkets participating an unplanned competitive edge, as well as helping the consumer) is definitely a factor, there can be no doubt that slow growth hovering on the brink of recession is the most potent antidote against inflation. But even the lower inflation expected for April at least only takes it back to the levels preceding last January’s devaluation — i.e. the same situation which led to that crisis —and even modest inflation continues to eat away at a static dollar, thus making it only a matter of time before that source of stability ends at some point late in this year. And to the extent that these corrections serve their purpose of placing the economy on a sounder footing (and especially if the remorseless fuel price increases succeed in allowing Argentina’s energy base to be revolutionized for the better), the incipient recession partially keeping inflation under control would be gone — even if productive growth would remedy the imbalance between supply and demand.
Some tricky months thus lie ahead for inflation and its antidotes — progress has been made but at the same time all the corrective policies (starting with devaluation and continuing with more realistic and less subsidized pricing of public services) are themselves inflationary — with more to come once the soy dollar flow ends in the second half of the year.