Consumer prices rose by 6.3% mom in July (from 6.0% in June), below market expectations of 7.1%, according to the Bloomberg survey. Annualized quarterly inflation fell to 117.7% in the quarter ended in July, from 135.4% in June. The 12-month inflation reading came in at 113.4%.
Core inflation remained stable at 6.5% in July. Annualized core inflation fell to 122.7% in the quarter ended in July, from 139.5% in June. Prices for regulated products increased by 6.7% mom and 112.6% yoy, led by energy tariffs. Finally, prices for seasonal products increased by 5.1% mom (from 1.8% in June) and 124.7% yoy.
Inflation is likely to accelerate sharply in the coming months, following the devaluation of the ARS in the official exchange rate on Monday August 14.
The central bank weakened the currency by 22% to 350 ARS/USD and raised the policy rate by 2,100 bps to 118%. While a devaluation was largely expected in the context of the IMF-staff level agreement, the timing and size had not been clear until now. According to media reports, the central bank will try to keep the FX unchanged until the presidential election on October 22. In our view, this goal is challenging given the low level of international reserves and the expected acceleration in inflation. The inflationary outlook has deteriorated significantly, and will likely exceed our inflation forecast of 160% by December.