Falling Argentine inflation and the challenge of recession

The National Institute of Statistics and Census (Indec, equivalent to IBGE) reported, this Tuesday (14), that inflation in May was 8.8%, accumulating 65% this year and 289.4% in the last 12 months . This was the first time since Javier Milei assumed the Presidency last December that inflation was in single digits.

In December, after the strong devaluation of the peso, the index reached 25.5%. In the following month, January, the price increase was 20.6%. In February, the fall continued, with a record of 13.2% and in March, 11%. The government’s goal has always been to achieve single-digit inflation in this first half of the year.

Milei celebrated the result on her social networks (X, ex-Twitter), writing: “GOL” and a photo of the Minister of Economy, Luis Caputo. The sectors that recorded the biggest price increases were water, electricity, gas and other fuels (35.6%). The main falls, in turn, were in some foods, non-alcoholic drinks and clothing, with price variations between 6% and 9.6%. The drop in inflation in April was also possible because the government ordered health plan companies to go back on the increases they had already applied to their beneficiaries and the postponement of increases in electricity tariffs, for example. As journalist Ezequiel Burgo noted, in his column this Wednesday in Clarín, “it was quick to reach a single-digit inflation rate, but the difficult part will be maintaining it at this level.” Burgo notes that some expected price adjustments are “suppressed.”

Expectations also continue regarding the moment in which the government will announce the end of exchange control. For the government, it is too early for the measure to come to an end. The challenges facing the Milei government, in addition to maintaining the downward trend of inflation, is the recession. According to the Economic Commission for Latin America and the Caribbean (UN ECLAC), the region’s economies are expected to grow, on average, around 2.1% in 2024. But South America will limit its economic expansion to 1.6%. And Argentina will have the worst performance in terms of Gross Domestic Product (GDP) among Latin American and Caribbean countries, with a decline of 3.1%, according to ECLAC.