Inflation will likely remain under pressure in 2H18.

Consumer prices posted the highest month-over-month increase since May 2016. CPI rose 3.7% from May to June, slightly above the Bloomberg market consensus forecast of 3.6%. Inflation for the last twelve month stands at 29.5% (up from 26.3% in May), while the annualized three-month measure is at 40% (from 32.8% previously).

A weaker currency led to a high core inflation reading.  Core item prices rose 4.1% MoM (up from 2.7% in May), led by the 5.2% increase in food and non-alcoholic beverages. The depreciation of the ARS also affected prices of electronic home appliances.  Annual core inflation hit 26.9% (from 23.7% in May), while the annualized three-month measure jumped to 42.1% (from 34.0% in the previous month). Regulated prices rose 2.9% MoM and 41.2 YoY, affected by rising prices for fuel, transportation and medical services. The price of items affected by seasonality increased by 3.4% MoM in June (22.2% YoY).

Inflation will likely remain under pressure in 2H18. We expect further fuel-price adjustments and a new round of tariff hikes is scheduled for October. Because the 16% year-to-date cumulative inflation exceeded most of the wage adjustments negotiated in 2018 (15%), unions are likely to push for some compensation. Still, we expect a likely weaker economy to curb these demands. Consistent with the expected lower volatility of the real exchange rate, our inflation forecast for this year stands at 30%.

Juan Carlos Barboza
Diego Ciongo