Itaú BBA - ARGENTINA – Inflation slowed again in May 

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ARGENTINA – Inflation slowed again in May 

June 16, 2021

We forecast 47% inflation for this year, with risks tilted to the upside

Consumer prices climbed by 3.3% mom in May, below market expectations of 3.6%, according to the latest central bank survey, and down from 4.1% in April and the peak of 4.8% in March. The 12-month inflation reading rose to 48.8% in May, from 46.3% in April. Annualized quarterly inflation decreased to 56.2% in April, from 63.2% in the previous month.

Core inflation – while higher than headline inflation – also posted a deceleration. Core inflation came in at 3.5% mom (52.5% year over year), down from 4.6% mom in April, driven by health services and food items. The core inflation reading decelerated to 63.8% (annualized) in the quarter ended in May, from 67.6% in April. Prices for regulated items rose by 3.8%, driven by the third adjustment of gasoline at the pump. On a year-over-year basis, regulated prices rose by 32.6%. Prices for seasonal products increased by 2.2% mom in April and 58.6% year over year.


 
In all, sequential inflation continued to fall – albeit at a slow pace – and will likely continue with this trend in the coming months. The central bank reduced the pace of depreciation of the official exchange rate to 1.2% mom and reduced monetary transfers to the treasury in line with a contraction of the fiscal deficit in the early months of the year. However, more rapid disinflation looks challenging. Economic agents have only slowly adjusted their inflation expectations down, as there is growing distortions in relative prices and announcements of new fiscal expenditures to assist vulnerable people in the face of a second wave of COVID-19.

Therefore, we forecast 47% inflation for this year, with risks tilted to the upside. 

Juan Carlos Barboza
Diego Ciongo



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