By Andrés Randazzo, Libertad y Progreso
Containing inflation is the greatest challenge the Government faces. Beverages, baked goods, meat and dairy were the major increases we saw in recent days, according to private consultants. They point out that, among other factors, the effects of the rise in commodities that resulted from the war have begun to be reflected.
According to the report made by the consulting firm LCG, during the third week of the month the price of the food basket climbed 2.4%, to accumulate a rise of 4.6% so far in March. Regarding last week’s rise, they pointed out: “This is the most important rise since we started the survey in September 2020. Beverages and Bakeries accounted for half of the weekly rise, Meat and Dairy another quarter. The other data to highlight is the proportion of products with increases, which rose to 24%, a level similar to those observed prior to Secretary Feletti’s price freeze, anticipating this measure.”
LCG remarked that, if the average of products increases registered in March (17% per week) is sustained, “this will imply that in less than six weeks all the food and beverages in the surveyed basket will have suffered an increase in their prices. ” Thus, the report highlighted that, on average during the last four weeks, food inflation is 4.6%, which rises to 5.9% when measured from end to end.
There are various factors that can explain the behavior of food prices in recent weeks. As they pointed out at LCG, the increase of 7.5% that the item registered in the CPI for February “did not incorporate the external shocks that the war in Ukraine will imply, both in food and fuel prices, and those that will be experience based on tariff and exchange rate adjustments due to the agreement with the IMF.”
Meanwhile, according to the survey carried out by the consulting firm Eco Go, “after a short first week with an increase of only 0.3%, the survey corresponding to the second week of March registered a variation of 1.9% of food prices compared to the previous week. With this data and considering a projection of weekly variation of 1.2% for the next two weeks of the month, the inflation for food consumed at home in March would climb to 4.3% monthly“, they remarked.
In this regard, Martín Burgos, an economist at the Cultural Center for Cooperation, pointed out that when analyzing how inflation could evolve during March, “the impact of the war should translate into strong numbers for March. That is where the increase in food prices comes in, which did not have a full impact in February. To that we have to add the tariffs and the increases in energy (petrol, petrochemicals, agrochemicals) that will undoubtedly impact costs,” he said.
When analyzing the reasons behind the acceleration in the level of inflation in general, and of food in particular, the director of the Fundación Libertad y Progreso, Aldo Abram, told Ámbito that “There are several factors that are plotting today against inflation in the first half is low. One, basic, is that during the second half of last year the rate of currency issuance increased, accompanied by a drop in the demand for pesos, which means that the rate of depreciation of our currency has been very strong”.
“What we are seeing now is not only a reflection of that depreciation of the currency, but also of everything that the Government did not allow to be reflected in the CPI regarding that depreciation before the elections, avoiding it through artificial methods. One of them was to delay the wholesale exchange rate and, by doing so, the goods that depend on this exchange rate (such as those that one buys in the supermarket) tend to vary less. That is unsustainable and therefore what we see is that after the elections the rate of growth of the wholesale exchange rate is increasing. And we are going to see that reflected in what is bought in the supermarket,” Abram remarked.
Referring specifically to the food sector, the economist concluded: “The freezing of prices, including the Aggressive Care Prices program, is not sustainable either. Now what is seen is that frozen prices do not exist: some were freed, others enter into a scheme with greater flexibility, and in January and February we saw the increases that were not seen due to the freezing of prices prior to the elections. Along the same lines, we can see increases in fuels and public service rates. They were late and they had to raise them because it was unbearable in terms of the Government’s fiscal needs to sustain the growth that tariff subsidies are having. That is why, in the first semester, we will see inflation rise for this reason”.
Libertad y Progreso is a public policy research center