The shards of the war scene between Russia and Ukraine and the different economic sanctions are being the main triggers of abrupt movements in the world economy. When the pandemic began, the Government generated a record monetary issue to subsidize the different economic and social sectors with very poor spending management in 2020. In 2021, with the attempt to win the elections, it delayed all the relative prices of the economy and had a record monetary issue of $1.8 trillion pesos. In December 2021 alone, that issue was $450 billion.
The invasion of Ukraine once again exposed Argentina's macroeconomic fragility. When it was necessary to adjust the relative prices of the economy lagging behind just those prices are the ones that rise internationally. When it was necessary to invest in gas pipelines so as not to depend on imported liquefied gas, they were dilated and now gas must be imported at a record price. When a sound monetary and fiscal plan had to be made, it was not done. Now the fault lies with the previous government and the excuse is the IMF to do so.
What is the world with the war against inflation that the President of the Argentine Nation wants to wage at this time?
Commodity prices on the rise: The main commodities are at new record values. Soybeans surpassed $620 per ton (the maximum in almost a decade), wheat reached $500 and corn is stable at $300.
Local food inflation hit: These new peaks generate cross-effects for both the domestic and external markets. In other words, these high prices would have an internal impact on the cost of bread, noodles and oils, thus creating greater pressure on food inflation, which in January and February exceeded the average consumer price index.
Price of oil and gas: The situation between Russia and Ukraine also influences the price of energy sources, such as: Brent oil and natural gas, among others. Regarding the situation of the rising price of Brent Oil, it could be seen that it closed at 112.4 dollars a barrel (it hit a peak during the war of USD 127) and natural gas ended at 131.2 dollars per megawatt hour (MWh). The issue becomes more alarming because our country imports energy, such as liquefied natural gas (LNG) and diesel oil that is imported for agricultural machinery. According to the consultancy firm INVECQ, it estimates that these increases would generate an increase in imports by more than 6.3 billion dollars. The agreement with the IMF involves reducing energy subsidies to lower
Price increase of gasoline and diesel oil: With the increase in the price of a barrel of oil and understanding that 20% of the fuel that reaches local refineries is imported, the increase in gasoline and diesel oil did not delay in arriving and this week had an average increase of 11.5%. For their part, in a context of high inflation, these increases have second-round effects on the transport and distribution of goods in our country. According to Paetac (First Business Association of Freight Transport) change in transport cost structure up to February 2022 year on year was almost 55% not including the recent increase in diesel oil. In March there was a further increase in average gasoline and diesel fuel of 10.5%. The year-on-year increase is only 35%, meaning that the delay is significant in the face of 52% year-on-year inflation and the international price of oil.
Russian imports into Argentina: From this perspective, the situation is also complex. With regard to trade not only from Latin America (imports chemicals such as 16.1% in nitrogen fertilizers to metals such as 14% semi-finished steel), but for Argentina there are also complicated consequences. We import mixtures of urea with ammonium nitrate in aqueous or ammonia solution, which reducing imports will also reduce the most common fertilizers for the field. According to Indec, a value of USD 650,710 million was imported in 2021.
Alert for withholding the countryside: The international war dynamics generate strong pressures on the inflationary level, such as some missing imports that would affect the countryside. On the export side, instead of taking advantage of record commodity prices to generate an agreement between the public and private sectors to improve planting and have a greater volume of future harvest, the government plans to record more withholdings on the current stock. Against the world.
Cumulative inflation 24 months: In the first 24 months of administration of the last 3 governments, Cristina Fernández de Kirchner had cumulative inflation of 76.8%, Mauricio Macri 78% and Alberto Fernández 131%. It is very difficult to promise to slow inflation when management shows inflation acceleration with no plan or targets to lower it.
Table of agreement on prices and wages: The Government insists on a careful price program, cuts of popular meat, trusts for commodities and oil, price control at the sector level, programs and popular fairs, among others. The agreement with the IMF proposes an inflation band for 2022 of between 38% and 48%. The market sees a flat inflation of 56%. In 2021, the same measures were indicated jointly at the same table with the government's commitment to reduce inflation to 29% and end up being 50.7%. The legitimacy of word and action is seen in the data and meager results.
Argentina should add predictability and greater peace of mind. However, we are in a scenario of instability. The real challenge is to seek to contain the international impact of the war conflict without the cross-effects of the Government's decisions pushing us back even further.
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