Which sectors of the Argentine economy will face the most inflationary pressure this year due to the Russian invasion of Ukraine

The recent February inflation figures released by the INDEC (4.7% per month and 52.3% compared to the previous year) were again shown in discussion tables both inside and outside the government, how much this acceleration is related to external factors, and how relevant it is to endemic issues in Argentina, and the inertia has become even greater due to macroeconomic imbalances. The administration of Alberto Fernández prefers to cling to exogenous causes, as in the current war between Russia and Ukraine. Obviously, it has an impact, but this situation that caused the price of goods to rise is aggravating the inflation context. It dates back a few months ago and the government has not been able to slow down over time.

In this regard, the consultant admits that, as a result of the war, it is possible to bring a few more points to inflation, which is expected to be between 50% and 55% already in December. Which sectors in the world are most likely to feel the impact of this price increase? Is it just food, or will it affect other areas that we rarely talk about?

According to Soledad Pérez Duhalde, an economist at consulting firm Abeceb, the global impact, since Russia produces agricultural products and fertilizers, will affect the rise in prices, which will affect not only food, but also the cost of producing these grains. However, since the country governed by Vladimir Putin is one of the world's leading producers of aluminum, it will also affect the construction sector. In addition, economists say that this industry has many inputs that depend heavily on energy, and it is more expensive in war. I will continue to do that. For example, liquefied natural gas (Japanese estimates) has increased from $15 to $38.3 per million BTUs from February to the present day.According to Pérez Duhalde, the construction cost index (ICC) will rise more than the CPI for this reason.

When asked about this, Gustavo Weiss, president of the Argentine Chamber of Construction (Camarco), said: “There are not only products that are scarce because they are produced in warring countries, but also those that require energy.” “Everything grows, aluminum, iron, oil. This is an increase in input prices that, like other economies, has been added to the construction industry, hitting us and is already beginning to be affected. For example, imported stainless steel equipment, pumps, everything related to sanitary work, “said the leader.

This context is causing price increases for some inputs that require sectors such as automobiles or consumer electronics, Abeceb economist said. He added that there is another impact on the economies of some regions, such as the pear and apple sector, which exports almost 30% to Russia. In this case, the impact in terms of trade is negative, but for consumers, the price of these fruits in the domestic market may be lower if they do not replace those markets with other export markets.

However, since it is the product that has increased the most in the last 45 days, wheat products and sunflower oil have the greatest impact, and they are already doing so. According to Juan Manuel Garzon, IERAL Foundation Cereals in Mediterranea have risen 36% since February 1, and sunflower oil (refined and bulk) has increased by about 70%. “What is happening in Argentina is that international prices rise in some important inputs to the food basket and final foods, but in other exporters, the rise in international prices is further complicated by the devaluation of the exchange rate when the currency is highly valued.” The economist said.

In the case of sunflower oil, it is the main oil for consumption in Argentina, and wheat produces bread, flour and all its derivatives, such as pasta and biscuits.The incidence is high, since raw wheat in a pack of noodles or rice accounts for more than 70% of the total cost, according to sources from major food companies. In fact, companies that produce these foods have already started sending lists of up to 20% increase to supermarkets.

But for others, the impact is not so high. “Buying 1 kg of bread costs not only wheat, but also other costs. Not everything can be attributed to the macroeconomics of Argentina, as well as international prices.” “, said Garzón. Federico Moll of Ecolatina thinks: “The effect is indirect and I would like to say that the contribution to the final price is low. The least eaten at the price of bread is wheat. Can I add something to the margin? That's right. However, it does not account for the current inflation level or the acceleration that is expected to appear in March.”

“The impact of the war on inflation may be more relevant, to the extent that it forces trade partners to move the exchange rate, thus affecting the dollar price of Argentine inputs in the process,” said the economist. If Brazil appreciates it, this may affect regional inflation, but it is not what we are seeing at the moment.”

The main concern for this scenario of war and its consequences is not only the expansion that causes the cessation of trade flows, but the planting of new campaigns in Ukraine and Russia will soon begin, so if the war continues, production is expected to decrease, so the problem of shortage of supply and high prices will extend over time.

The increase in WTI oil, which has accumulated 9% since the beginning of February, affects the manufacture of many products, including some fiber inputs, such as polyester or lycra, which contain petroleum-derived ingredients.In addition, the sector warns that “when a war occurs, logistics issues are complicated and everything becomes more expensive for that reason.”

However, the main impact that Argentina will have will come from gas imports that are very expensive and that the country still depends, despite the great potential that exists in Vaca Muerta.

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