Itaú BBA - ARGENTINA – Inflation Above Expectations Once Again in February

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ARGENTINA – Inflation Above Expectations Once Again in February

March 14, 2019

Adjustments in regulated prices as well as the depreciation of the ARS are likely to keep inflation high in March

Inflation accelerated for the second consecutive month, driven by food and regulated prices. Consumer prices rose 3.8% mom from January, above the 3.6% Bloomberg consensus forecast. The annualized three-month measure rose to 45.1% (from 40.4% in January), while the annual reading hit 51.6% (from 49.3% in January), marking a new record high. 

Core item prices continued to rise. Core inflation came in at 3.9% mom (up from 3.0% in January), led by food (particularly meat prices) and non-alcoholic beverages. At the margin, the core reading is running at 45.9% annualized (last three months), up from 42.6% in January. The last-twelve-month inflation reading jumped to 52.5%, from 49.9% previously.
 

Regulated price inflation sped up following a new round of tariff hikes and fare adjustments. Regulated prices rose 4.2% mom – the highest reading since October of last year – led by increases in electricity, public transportation, health services and gasoline. The annual reading hit 54.5%, almost stable from January. Finally, inflation on items affected by seasonality rose by 1.9% mom, due to price increases for vegetables and fruits, bringing the annual reading to 36.5% (from 33.1% in January).

Further adjustments in regulated prices as well as the depreciation of the ARS against the USD are likely to keep inflation high in March. Price-tracker consulting firm Elypsis estimates a 3.5% mom increase in consumer prices for March, due to the announced price hikes for electricity, public transportation and gasoline. The inflationary outlook has deteriorated amid the upcoming wage negotiations, making disinflation even more challenging. As a consequence, the central bank tightened its monetary policy stance, which in turn led to an increase in the Leliq rate to over 60% (from 43% in February). We revised our forecasts for inflation this year to 35%, from 30% in our previous scenario. We also expect higher interest rates by December, at 37% instead of 32%. 



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