Devaluation-driven inflation forces Macri to maintain Cristina Kirchner's Price Care program.
The Argentine Ministry of Commerce, which had announced its intention to limit the Price Care program of price controls from 512 basic consumer goods to 70, backtracked on this decision after a demonstrations led by consumer advocacy groups in Buenos Aires end elsewhere. The Price Care program, it was announced today, would be maintained on 400 basic items.
The new list will be effective on January 1, 2016, and authorizes price increases of 5% on average. The Ministry of Commerce, however, announced to suppliers that there would be fewer controls to products outside the plan.
Enacted by former President Cristina Kirchner in March 2013 to cover 194 basic consumer goods, the Price Care care program was expanded to 512 goods the following year and had an average compliance rate of 64% on both price and availability; of the supermarket chains surveyed, only Chilean-owned Jumbo stores had compliance rates of less than 50%. The program's impact on overall inflation is a subject of debate because private inflation estimates deliberately exclude items covered by this program; the market share of items within the Price Care program increased substantially, however. Neighboring Uruguay, under former President José Mujica, enacted a similar program known as Protected Prices.
Inflation, which had been averaging 1.6% a month (20% at an annualized rate) prior to Macri's narrow November 22 runoff victory, has accelerated sharply as manufacturers and wholesalers, who use the official peso/dollar exchange rate as reference, rushed to raise prices by 30 to 50% to match the new exchange rate of nearly 14 pesos (a 40% jump); some had raised prices even further, fearing a new exchange rate of up to 16 pesos. While retailers have managed to absorb some of that, inflation is now projected to reach 5% a month in December, and 3% in January before stabilizing at earlier levels.
Wages, which in Argentina rise by an average of 2% a month (28%, annualized), are not expected to accelerate, given the Macri administration's opposition to collective bargaining rights (which were revived and strongly backed during the Kirchner era between 2003 and 2015).
University of Buenos Aires economist Ariel Setton believes that Macri's decree sharply reducing export taxes for most agricultural raw materials has contributed to the recent spike in prices as much as the devaluation itself has, since it creates inherent incentives to depress the domestic market for the sake of increasing export supplies. "In this context, added to the Macri team's lack of a plan to support the purchasing power of the working class, I see a trend in the short term towards a slightly smaller domestic market. There will undoubtedly be a recession as a result."
Dante Sica, head of the consulting firm Abeceb, explained that "the greatest impact is being seen in food prices, and I think that further strong prices increases may follow." He agreed with Setton's assessment that the removal of export taxes are contributing to the problem. "We must see how this price scenario impacts future price truce proposals by the government. The previous one failed; but the liberalization of imports might make a difference."
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