Itaú BBA - ARGENTINA – Inflation was below market expectations in July

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ARGENTINA – Inflation was below market expectations in July

August 13, 2020


Headline inflation surprised to the downside due to a marked deceleration in seasonal products. The CPI increased by 1.9% mom in July, down from 2.2% in June. Inflation missed the Bloomberg consensus estimate of 2.2%. Even so, annualized quarterly inflation increased to 25.0% in the quarter ended in July, from 23.1% in 2Q20. The 12-month inflation ticked down to 42.4%, from 42.8% in July.

Core inflation continued to accelerate. Core item prices rose by 2.5% mom in July, up from 2.3% in June and 1.6% in May. Inflation was once again led by price increases on durable products (electronic devices) and home appliances, which have likely been affected by import restrictions. The core inflation reading increased to 29.2% (annualized) in July, from 25% in 2Q20. Regulated prices gained 0.5% mom and 4.5% annualized in the quarter ended in July, helped by freezing of energy and transportation tariffs. Prices for seasonal products (mostly fruits and vegetables, and seasonal apparel) decelerated to 0.9% mom (50.2% annualized in quarter ended in July).

Inflation will likely accelerate in the coming months. We expect the August CPI to reflect an upcoming adjustment of fuel prices and the full impact of the July increase in prices of some food and cleaning products, which are currently capped by the government.  According to the latest central bank inflation expectation survey, consumer prices would increase by 3.0% mom in August. Looking further ahead, we expect some normalization of demand to generate inflationary pressures as lockdowns are eased and the central bank continues to finance a growing fiscal deficit. We forecast 40% inflation for this year.
Juan Carlos Barboza
Diego Ciongo


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