Itaú BBA - Evening Edition – Inflation continues to decelerate in Argentina

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Evening Edition – Inflation continues to decelerate in Argentina

July 16, 2019

Consumer prices decelerated for the third consecutive month in June.

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Consumer prices decelerated for the third consecutive month in June. Inflation came in at 2.7% mom in the period, from 3.1% in May, slightly above the market consensus (2.6%). Appreciation of the ARS and freezing of some regulated prices supported the disinflation. The annualized measure of the last three months consequently receded to 43.7% (from 55.2% in May), while the annual reading decreased to 55.8%, after five consecutive gains. Core inflation also decelerated, printing at 2.7% mom in the month. For July, we expect the moderate disinflation to continue. The consulting firm Elypsis estimates a new sequential reduction in headline inflation, to 2.3% mom. Our forecast for December’s inflation stands at 40% in year-over-year terms. ** Full story here.


According to the central bank’s monthly analysts survey, inflation expectations for 2019 edged up to 3.55%, from the 3.40% expected in June. The 1-year horizon inflation outlook remained broadly stable at 3.30% (3.31% in June), while the 2-year horizon inflation expectation moderated to 3.08% (3.19% previously). Higher prices are seen as driven by supply-side shocks affecting volatile components, as yearend expectations for inflation excluding food prices only inched up to 3.29% (from 3.24% previously), and remained broadly unchanged for one and two-year ahead horizons. Meanwhile, the policy rate is seen stable at 4.25% at next week’s monetary policy meeting, where it will stay until February 2020, with the central bank hiking rates to 4.50% the following month (unchanged from June). We believe that the central bank will start an easing cycle before the yearend, cutting rates to 4.0%. Meanwhile, the growth outlook for this year moderated to 3.1%, from the 3.2% recorded the last time GDP was surveyed (April). A recovery to 3.5% is expected for 2020. Low consumer confidence, a weak labor market, and our expectation of lower global growth make us believe a meaningful activity acceleration this year is unlikely. Hence, we expect the central bank to increase the monetary stimulus ahead, but higher food inflation is a risk to our call.

Tomorrow’s Agenda: Think-tank Fedesarrollo will publish industrial and retail confidence for June. In May, both industrial and retail confidence remained in optimistic ground, with the former consolidating its recovery while the latter fell over the twelve-month period for the first time since February 2018. Going forward, a weak labor market amid elevated global uncertainty would likely prevent a significant growth improvement and contain confidence levels.

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