Argentina closes 2020 with an inflation of 36.1%

Argentina closed 2020 with an annual inflation of 36.1%. The Minister of Economy, Martín Guzmán, noted that the rise in prices had fallen by more than 17 points compared to 2019, when it was 53.8%. “We must continue on this path of reduction,” he said. Not all signs, however, are positive. Quite the contrary. During 2020, Argentina experienced more than a month (from March 20 to April 26) of industrial stoppage and complete confinement of citizens, and another three months of weak activity and consumption due to the quarantine against the pandemic, which reduced the pressures inflationary. In December, with more activity, monthly inflation was the highest of the year: 4%.

Another sign that prices are rising again is in the so-called core or core inflation (which discounts regulated and seasonal goods and services), which in December rose to 4.9%. In some foods, such as meat, the rise was greater.

Guzmán hopes to reduce inflation by about five points each year. In 2021, therefore, it should barely exceed 30%. He says that to achieve this, he has “a comprehensive macroeconomic strategy with multiple dimensions: exchange policy, fiscal and monetary policy, tariff policy, and price and income policies in which the State plays a fundamental role.”

Regarding exchange policy, the devaluation of the peso against the dollar in 2020 was much higher than inflation: in January 2020, in the free market, a dollar was bought for 78 pesos; now, a year later, a dollar costs 160 pesos. The peso is now worth almost half, despite strict exchange controls. This data could push Argentine savers to continue buying dollars, forcing new devaluations and price increases.

Regarding the primary fiscal deficit, it is estimated that in 2020, due to measures against the pandemic, it will have reached around 7%, the highest in recent history. And monetary policy, due to the recession and the pandemic, has undergone a brutal distortion: the need to compensate for the budget deficit, without having access to credit markets (it is still being renegotiated with the International Monetary Fund), has forced to print almost two trillion pesos. As the two mints in Argentina cannot cope with the demand, despite having performed 24-hour shifts, additional banknote remittances have been ordered to Brazil and Spain.

All that, according to analysts, fuels future inflation. While the government expects prices not to rise much more than 30% in 2021, private analysts consider a forecast close to 50% more realistic. Argentine inflation is the second highest in Latin America, behind Venezuela (in full financial collapse and with hyperinflation), and one of the highest in the world. In a single month, December 2020, Argentina had an inflation similar to that of Brazil in a whole year: 4% compared to 4.5%.