Argentine Prices Cool More Than Expected as Food Costs Slow

Argentine Prices Cool More Than Expected as Food Costs Slow

16/06 Argentina’s inflation slowed more than expected in May as the government reintroduced a temporary lockdown to combat the pandemic and food prices cooled considerably.

Consumer prices rose 3.3% from April, less than economists’ forecasts for a 3.8% increase. Annual inflation reached 48.8%, its fastest pace in over a year, according to government data published Wednesday. The annual rate has surged in recent months after finishing last year at 36%.

Food prices, partly affected by the government’s controls, only increased 3.1% in May, a significant drop from the previous month’s 4.3% pace. To battle a new wave of Covid-19 cases, President Alberto Fernandez also implemented a nine-day lockdown in May which helped to contain price increases, even though the restrictions have since been relaxed somewhat.

Economists pointed to the government’s currency controls and price freezes, among other factors, for temporarily putting a lid on inflation at the expense of future expectations, which recently reached a record 50%.

“Such controls and the resulting distortions in relative prices have created a fair amount of repressed inflation in the system, keeping inflation expectations poorly anchored,” Goldman Sachs economist Tiago Severo wrote in a research note Wednesday.

Fernandez’s government has struggled to rein in inflation so far this year, making its 29% target for 2021 practically unattainable. A surge in global commodity prices, the government’s money printing to finance Covid-19 spending and uncertainty over Fernandez’s economic plans have contributed to accelerate inflation in Argentina.

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