Itaú BBA - ARGENTINA – April headline inflation eased more than expected

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ARGENTINA – April headline inflation eased more than expected

May 15, 2019

Inflation is expected to continue falling in May.

Headline inflation decelerated in April, driven by mostly regulated prices and seasonal food products. Consumer prices rose 3.4% mom from March, down from 4.7% in the previous month and lower than the 4.0% Bloomberg consensus forecast. Anyway, the annualized measurement of the last three months continued to rise, to 59.5% (from 56.4% in March), and the annual reading marked a new record high (55.8%).  

Core item prices also eased. Core inflation came in at 3.8% mom (down from 4.6% in March), led once again by food and beverages. At the margin, the core reading is running at an annualized 61.9% (last three months), up from 57.0% in March. The last twelve-month inflation reading jumped to 58.0%, from the previous 55.6%.

The increase in regulated prices was led by hikes in transportation fares, fuels and gas tariffs. Regulated prices rose 3.3% mom, while the annual reading hit 58.0%, (slightly down from 58.9% in March). Finally, inflation for items affected by seasonality contributed to the deceleration of the headline figure, as the price of these products rose  1.6% mom  (down from 4.8% mom in March), bringing the annual reading to 41.9% (from 40.9% the previous month).

Inflation is expected to continue falling in May. The price-tracking consulting firm Elypsis estimates a 3.0% mom increase in consumer prices for the current month due to the lower statistical carry-over from April but still affected by hikes in gas tariffs, water tariffs and medical services. The government expects further deceleration in the coming months, given tight monetary policy, the implementation of some income policies (mainly the freezing of electricity and transportation tariffs), and expectations for a more stable nominal exchange rate (the monetary authority announced it will sell dollars even if the exchange rate is trading stronger than the upper bound of the old non-intervention zone).  

We still see upside risks to our inflation forecast. We project a 40% year-over-year increase in consumer prices by December, which also means some disinflation ahead. However, we note that further exchange-rate instability and stronger indexation in wage negotiations still represent significant challenges.

Juan Carlos Barboza
Diego Ciongo


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