Argentina: inflation continues to slow but recovery is slow

Inflation in Argentina continued the gradual deceleration that began five months ago in May, 4.2% over one month, the lowest in two and a half years, but which remains overwhelming over one year, 276.4%.

The price index in May, published Thursday by the National Institute of Statistics (Indec), fell below 5% for the first time since November 2022 when it reached 3.9% .

A deceleration therefore continues, for which the government of ultraliberal President Javier Milei is pleased: after 25.5% in December –under the mechanical effect of a strong devaluation of the peso decided by the same Milei–, 20.6% in January, 13.2% in February, 11% in March and 8.8% in April.

A sign offering food on a street in Buenos Aires, June 13, 2024 in Argentina © AFP – LUIS ROBAYO

“The ongoing disinflation process has deepened,” Finance Minister Luis Caputo rejoiced on social media.

In corrected data, inflation in Latin America's third largest economy still reached 71.9% over the first five months of 2024, and 276.4% over twelve months (289.4% in April).

May inflation was mainly driven by the communication (8.2%) and education (7.6%) sectors.

Commercial premises for rent on a street in Buenos Aires, June 13, 2024 in Argentina © AFP – LUIS ROBAYO

But beyond the price index, consumption and activity are plummeting under the effect of the December devaluation and all-out budget cuts.

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The recession is established, with a contraction of 5.3% of the economy in the first quarter compared to the same period last year, and of 16.2% of SME retail sales since January.

-Poverty on the rise-

“The significant drop in consumption largely explains the reduction in the inflation rate since December” , explains economist Hernan Letcher, director of the Argentine Center for Political Economy (CEPA), to AFP.

Food price posters on a street in Buenos Aires, June 13, 2024 in Argentina © AFP – LUIS ROBAYO

The Argentine economy is expected to contract by 2.8% this year, according to the International Monetary Fund (IMF), after already a decline of 1.6% in 2023.

But for President Milei a recovery is already there or almost there, with an increase in real private sector wages of 16% in April: the recovery of purchasing power “the most significant since 2009”, trumpeted the presidency.

Relative salary data, however, in a country where informal employment represents more than 45% of the active population, according to the latest official figures from the end of 2023, even before the impact of austerity measures.

Denying a recovery, opposition and social movements cite a country in suffering, with poverty on the rise since the end of 2023, to 55.5% of the population in the first quarter of 2024, compared to 44.7% a year earlier, according to the Social Debt Observatory of the Catholic University (ODSA-UCA).

People wait at a bus stop on a street in Buenos Aires, June 13, 2024 in Argentina © AFP – LUIS ROBAYO

The latest official half-yearly figure, on a separate calculation basis, showed 41.7% poor at the end of 2023.

The inflation figures are published a few hours after the approval by the Senate of all the deregulatory reforms wanted by President Milei, who thus obtains for the first time in six months in power support from Parliament.

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