ARGENTINA – Disinflation postponed

Inflation came in higher than expected in April.

In spite of exchange rate strengthening, inflation came in higher than expected in April. We note that market expectations were already high (2.0%, in the Bloomberg survey). According to INDEC (official statistical agency), consumer prices climbed 2.6% between March and April, up from 2.4% in March and 2.5% in February. Inflation picked up (again) not only due to regulated prices (in this month, higher gas tariffs), which gained 3.7% relative to the previous month, but also because core inflation accelerated markedly to 2.3% from 1.8% in March. So the three-month moving average of core inflation reached 26.6% annualized (significantly higher than the 21.4% registered in 1Q17 and the 22.4% in 4Q16). Prices of products that exhibit seasonality gained 2.5% from March.


April reading compromises the inflation target for the year. Inflation accumulated 9.1% in the first four months of 2017, while core prices already gained 7.5% in that period led by food and beverage prices. Regulated prices increased 13.9% year-to-date (contributing with 3.2% to inflation). As the inflation statistics published by Indec started to cover prices since April 2016, we now have the first official annual reading (27.5%). Due to a high comparison base (4.2% month-over-month in May 2016), annual inflation is expected to fall in May 2017.

Although inflation came in above expectations, the April CPI will not be the trigger for another hike. In fact, the central bank has already acknowledged in the statement announcing the most recent policy decision that, based on high frequency indicators, April CPI would be unfavorable, while the available information shows that May CPI is consistent with a disinflation process. Nevertheless, given the size of the surprise, inflation expectations could deteriorate and lead to a new policy rate increase.

A national CPI will be published in July. The new index will cover consumer prices in the 24 provinces and details will be disclosed next week. The current CPI, which covers the city of Buenos Aires and neighboring counties, will continue to be published. The central bank clarified that the CPI targeted for this year will be the accumulated readings at the national level plus the accumulated inflation in the Great Buenos Aires area (the current CPI index) in the months that the national CPI is not available (likely the first five months of the year). While regulated inflation has been higher in Buenos Aires than in other parts of the country, the difference between national CPI and the current index will probably be small from June to December 2017, as no significant tariff hikes are scheduled for this period.


João Pedro Bumachar Resende

Juan Carlos Barboza

Diego Ciongo

Fuente: ITAU

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