Argentina raised its own dollar price in 2021, as the dollar fell behind inflation. Last year, this “green inflation” was 28,8 percent, increasing Argentines’ access to commodities listed in that currency while also lowering the competitiveness of the country’s exports. Inflation in USD has reached 27.3 percent in the last year. And it has already increased by 7% in the first quarter.
According to economist Salvador Di Stefano’s estimations, the government policy of utilizing the dollar as an anchor to try to control inflation, which peaked at 50.9 percent in 2021, had severe side consequences. “As a result of this approach, there was a 28.8% increase in dollar inflation in 2021,” he explained.
“Inflation in dollars raises the cost of living in Argentina and makes us less competitive.” “The devaluation rate was 8% in the first quarter, and inflation is expected to be close to 15%, resulting in dollar inflation of 7%,” said Di Stefano.
Argentina’s business prospects are affected by this problem. “We can’t remain competitive when our products’ prices grow by 30%,” the economist stated.
He used the example of wheat, which “become the cheapest in the world” due to the effect of withholdings and the exchange disparity, but “cannot be exported because it is not competitive” when transformed into flour.
This effect can be seen behind closed doors in the real estate and automotive markets, as well as in the marketable offer. “The price of real estate reached a bottom in dollars and began to rise, and the same thing is happening with trucks: they were purchased for US$ 35,000 a few years ago and are now worth US$ 50,000.”
At the same time, it affects savings, which degrade even if they are in US dollars. “The joint loses purchasing power in money” slid.
“In the face of a creeping peg -rate of devaluation- that hasn’t taken off, the high nominality of prices is having a detrimental effect on dollar inflation,” said Nery Persichini, manager of the stock exchange company GMA Capital.
According to this computation, the cost of living in dollars at the official exchange rate increased by 2.1 percent in February. In the last year, it has grown by 27.3 percent. “This statistic more than doubles the monthly fluctuation in the US CPI (0.9 percent), creating a big concern for the peso’s competitiveness,” Persichini said.
This dilutes the favorable impact of the peso’s increased competitiveness against regional currencies. “Argentine products and services are getting more expensive in hard currency, despite the fact that the Brazilian real has strengthened by 12% so far in 2022, and other currencies of our trading partners also contribute to its revaluation.”
“Inflation will continue to rise faster than the exchange rate over the next few months.” Even if oil prices decline, inflation in pesos will continue to lag; it will most likely reach 60% or higher. Agustn Etchebarne, an economist at the Fundación Libertad y Progreso, stated, “I believe the dollar will sink a little farther.”
The exchange rate spread, which had fallen below 80% in the previous month, will widen as a result of the dollar’s backwardness. “The difference is expected to expand again, depending largely on expectations and inflation acceleration.” This will have an impact on the fact that the soybean dollars will no longer be available in the second part of the year, increasing tensions with other issues such as gas shortages. Expectations will deteriorate as a result of all of this. And it is obvious that we require a strong currency, as weak currencies liquefy wages.”