Experience shows that stable control of inflation – i.e. over a more or less long period of time – usually takes several years when there are large imbalances. It is a message that has been repeated in the conferences of FAITHFUL by the speakers assessing the international evidence confirmed particularly for the Latin American economies as well as for the hyperinflation events in post-war Europe Israelamong the most famous. Only those convertibility and the dollarization processes show a faster convergence in desperate processes of unleashed hyperinflation.
In his conference for FAITHFUL last November 12th, Ernesto Talvi analyzed the differences and similarities that the stabilization plan has Argentina with that of Uruguay from the early 90s. And although the “details” of the differences must be taken into account in the context and, to a lesser extent, in the policies, for our country the caution applies to the coordination of policies and times necessary for a stable decline in inflation and macroeconomic order. For Uruguay It took almost 8 years to reach the 10% annual level. For the Argentinait is likely that fewer years will be required, but it is clear that this will not be the case in 2026 and most likely not in 2027 either. “Normal” requires profound changes. It requires discipline, perseverance and time like you have invested chili, Uruguay, Brazil, Israel, Peru, Paraguay.
Firstly, it takes time because the inflation rate is not independent of the reform path the country takes. Argentinaincludes disarmament and a restructuring of subsidy policy – especially in the transport and distribution of electricity, gas and water. Added to this is the need to address changes in regulations (particularly laws) that lead to increased competition in factor and product markets. And it also depends on how long it takes to adjust and restructure spending consistent with the restructuring of tax policy.
In fact, the dismantling of the subsidy system is not yet complete and its effects will be felt for some time to come. The decline in subsidies partly explains the increase in regulated prices, which remain unchanged month after month and require these prices to remain above headline inflation for some time to come. Regulated price inflation averaged 2.36% monthly between January and October, but 2.63% monthly between August and October and will remain above 2% for the last two months of 2025 and possibly much of 2026. Although the weight of regulated prices is not directly high, tariff increases also have an indirect impact on other prices.
The change in relative prices, when all prices rise at a certain rate, requires that those that need to rise in real terms do so at higher rates for a while, or that those sectors dramatically improve their efficiency (which is essential in the passenger transport sector in order not to charge prohibitive prices for inefficient services). The latter requires high investments and restructuring. Is it now possible to prevent the continuation of differentiated price increases?
The dismantling of the subsidy regime is not yet complete and its effects will be felt for some time
As for the tax cut, the reduction in withholding tax on exports will have a direct impact on prices in the future, although it favors the reallocation of resources and greater efficiency, which will lead to lower inflation in the medium term (but not immediately). In the same sense, increasing fuel taxes will put pressure on prices in the short term, but in the long term will improve the quality of the tax system by replacing other taxes. The formalization of the economy, in turn, will in the short term – if progress is made – cause some prices to rise as they are effectively taxed, and others to fall (those that disappear as informal), so efficiency improvements will eventually prevail, but only in the medium term. All of these steps are necessary to improve efficiency, but they come at a certain cost.
The reform of public spending both at the subnational level – provinces and municipalities – and at the nation This would facilitate the adjustment process of the private sector and thus consolidate macroeconomic stabilization. However, the longer it takes to implement reforms, the longer and more traumatic the adjustment process will be for the rest of the economy, the slower it will be to reduce fiscal pressures and the greater the imbalances affecting inflation. Opening up the economy encourages price reductions through more competition, but does not necessarily mean lower inflation. Beyond impact unique From the elimination of para-tariff barriers and the reduction of tariffs at the beginning of the process, which helps to accelerate the decline in inflation in the first years, the lower inflation after a while (third or fourth year) will be associated with the macroeconomic balance and the prevailing regulatory design in the factor and product markets.
An eventual labor law reform, if profound enough to improve contracts through greater flexibility, can help improve the response of supply to the business cycle – the fear of a contraction is lost – and thus favor a faster adjustment between supply and demand, which is often the cause of an acceleration of inflation in the short term. This requires a more flexible design of the permanent contract – which dramatically reduces the uncertainty about the costs of a breach of contract and the possibility of a contract modification – and the facilitation of short-term contracts (no risk as they could be converted into long-term contracts due to legal disputes in court). All of this may be more important than reducing the direct cost of hiring by a few notches.
The quality of labor reform (or labor reforms that accumulate over time) will determine whether the Argentinacan pursue an economy with high growth rates while maintaining diversified supply and price stability following the ongoing process of macro- and micro-economic reforms.
Reaching “normal” inflation levels is within reach Argentinaas has been the case for countries with a long history of imbalances. But after the initial decline, it is necessary to intensify efforts and persevere. As with the harvesting process, after obtaining the fruits that are lower on the plant, you need to start extending your arms and climbing a ladder to harvest the highest fruits.
It is very important to realize that the success of the current stabilization and reform program will be measured not in months but in years and that the path is only just beginning to open. And this price stabilization depends – as international experience shows – on the progress of the entire reform program, not just on part of it.
The author is director and chief economist of FIEL. This note was published in FIEL’s Economic Indicators 681
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