Disinflation is coming at the cost of higher distortion of relative prices.
Consumer prices climbed by 3.2% mom in June, in line with market expectations, according to the latest central bank survey, and slightly down from the 3.3% registered in May. The 12-month inflation reading rose to 50.2% in June, from 48.8% in May. Annualized quarterly inflation fell to 51.7% in June, from 62.6% in March.
Core inflation remained above the headline reading for a third consecutive month. Core inflation came in at 3.6% mom (54.5% year over year), up from 3.5% mom in May, driven by meat and dairy. The core inflation reading decelerated to 58.2% (annualized) in 2Q21, from 63.2% in 1Q21. Prices for regulated items rose by 3.2%, driven by mobile and internet services and tobacco products. On a year-over-year basis, regulated prices rose by 35.8%. Prices for seasonal products increased by 0.5% mom in June and 54.5% year over year.
Disinflation is coming at the cost of higher distortion of relative prices. More rapid disinflation seems challenging despite central bank efforts to slow down the depreciation of the ARS. The monetary authority weakened the currency by 1.1% mom in June, and it seems likely to make a further reduction in July. Pressure on the blue chip swap market (driven by the approaching legislative elections) and stubbornly high inflation expectations (due to an expected deterioration of the fiscal deficit) pose upside risk to our forecast of 47% inflation for 2021.
Juan Carlos Barboza
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