Itaú BBA - ARGENTINA – Inflation Spike in August

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ARGENTINA – Inflation Spike in August

September 13, 2018

We see no room to cut the monetary policy rate

An increase in regulated prices and a weaker ARS caused inflation to rise in August. Consumer prices rose 3.9%, above the Bloomberg market consensus forecast of 3.8% and the 3.1% MoM registered in July. Price increases on electricity, transportation, fuel and medical services drove the CPI higher. The sharp depreciation of the ARS had a partial impact on consumer prices in in August and will likely have a bigger impact in September. Inflation for the last twelve months rose to 34.4% in August (from 31.2% in July), while the annualized three-month measure soared to 52.3% (from 42% in July).  

Core inflation in August was higher than in the previous month, reflecting a weaker ARS. Prices for core item rose 3.4% MoM (up from 3.2% in July), once again led by a 4.0% increase in food and non-alcoholic beverages. Annual core inflation hit 31.2%, while the annualized three-month measure jumped to 52% (from 47.9%). Regulated prices rose 6.2% MoM and 48.2% YoY. The price of items affected by seasonality increased by 1.9% MoM and 27.3% YoY in August. 

The weaker ARS will likely have a significant impact on inflation in September. Private consulting firm Elypsis forecasts a 5.5% increase in consumer prices this month. We revised our year-over-year inflation forecast for December up to 45% (from 31%), due to the pass-through of the ARS depreciation to prices, expectations of further fuel-price adjustments, and another round of gasoline price hikes scheduled for October. We see no room to cut the monetary policy rate (currently at 60%) in this challenging inflationary scenario, with risks skewed to the upside.

Juan Carlos Barboza
Diego Ciongo

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