Itaú BBA - ARGENTINA – Inflation Outlook Deteriorates Despite Positive Headline CPI Surprise in April

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ARGENTINA – Inflation Outlook Deteriorates Despite Positive Headline CPI Surprise in April

June 14, 2018

Continued weakening of the ARS will likely keep inflation at a high level

The increase in consumer prices in May was below expectation. CPI rose 2.1% from April to May, below the Bloomberg market consensus forecast of 2.5% and the 2.7% reported in the previous month. The relatively low headline inflation was favored by regulated prices, which increased by only 0.4% MoM. Energy tariffs declined slightly due to the exemption of gross revenue taxes for distribution companies. The 12-month inflation increased to 26.3%, from 25.5% in the previous month.

Core inflation peaked. Core item prices increased by 2.7% MoM (up from 2.1% in April), led by the 3.3% increase in food items between April and May due to a weaker ARS. The annual reading was 23.6%, while the annualized three-month measure increased to 34% (from 30.8% in April and 27.6% in March).

Continued weakening of the ARS will likely keep inflation at a high level.  The ARS depreciated by an additional 11% (50% YTD) since the announcement of the agreement with the IMF for a USD 50 billion credit line and threatens the intermediate targets for June 2018 (27%) and June 2019 (22%).  We therefore believe that another hike in the monetary policy rate (currently at 40%) at the upcoming monetary policy meeting, or even before, is very likely.  In this environment, we see upside risk to our 26.5% inflation forecast for this year.

Juan Carlos Barboza
Diego Ciongo



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