In dialogue with Channel E, Federico GlusteinEconomist, warned that keeping inflation below 2% per month will be a structural challenge if price inertia is not controlled.
“I find President Javier Milei’s statement very optimistic that zero inflation is expected by the end of the year.“, he explained, explaining that the current price dynamics do not support this scenario.
The economist emphasized that in Argentina there is a direct connection between the exchange rate and inflation. “There is a trade-off between exchange rate and inflation as many goods and services are converted into dollars“, he claimed, adding that non-tradable products also adapt to stock market expectations. In this context, he warned: “It is very difficult to anchor inflation expectations when inflation has been running at around 2% monthly for six months.“.
Ongoing problems with inflation and expectations
Glustein reviewed the recent development of the CPI and questioned the official calculations. “At 2.5% in January, it’s no coincidence that you end up with 6% per year“, he assured, pointing out that December could close between 2.5% and 2.7%. For the economist, the main problem is inflation inertia.”The first thing you need to start cutting is inertia“, he emphasized.
Although he acknowledged that some prices will continue to rise due to seasonal factors, such as meat, he clarified: “It is not the general price level that stirs the hornet’s nest, but individual specific goods“The key is to ensure that the increase in demand is not automatically reflected in prices,” he explained.
With this in mind, he suggested two paths: “One way is to reduce taxes, the other is to open up competition to other players.“. Glustein He emphasized that profitability in Argentina is high compared to international standards and that “Lowering this through competition and a tax cut will allow you to control the final price“.
Dollars, bands and spiralization risk
When asked about the exchange rate system, the economist was critical. “The exchange rate spread is quite detrimental to the volatility of the Argentine economy“He explained. As he explained, the dollar tends to move near the upper limit of the band when the market expects interventions.
Glustein warned of a particular danger: “The danger is that once you reach the top of the band, you won’t be able to get it down any further.“In this scenario, the government would be forced to change the system. Furthermore, it warned of a dangerous dynamic: “Inflation will tend to influence the dollar, and in a second round the dollar will influence inflation“.
To avoid spiralization, he stressed that the central goal must be to control the general consumer price index. “Step one: Control the level of CPI and prevent services from rising too much above the inflation rate“, he concluded, pointing out that education and other sectors have already adapted to the new pricing reality.
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