Argentina closes 2023 with the worst inflation record in more than 30 years

Argentina closed 2023 with 211.4% interannual inflation, the highest figure since the hyperinflation of 1989-1990, in the first measurement of the Government of Javier Milei, who, in his ‘shock’ plan, signed a 50% devaluation of the weight at the beginning of the administration and seeks to deregulate the economy as much as possible.

As reported this Thursday by the National Institute of Statistics and Censuses (Indec), the consumer price index grew by 25.5% in December compared to November, evidencing a strong acceleration compared to the previous month.

This growth would be linked to the so-called ‘honesty’ of prices after the departure of the Executive of Alberto Fernández, whose Minister of Economy and Milei’s rival in the presidential runoff on November 19, Sergio Massa, carried out a policy of ‘fair prices’, stopping the escalation in the most basic products.

Precisely shortly after knowing, last December, the first economic measures of the Milei Executive, the Central Bank maintained that the beginning of the price liberalization process was “essential requirement to advance in the reversal of fiscal and external imbalances“, due to “marked distortions in relative prices” which, according to the issuing entity, had the objective “repress and delay” the “inflationary consequences of the State’s deficit policies”.

Last December, the notable increases were in various goods and services (32.7%), health (32.6%), as a result of increases in medicines and in the fees of private medicine companies, and transportation (31.7%).

In addition, food and non-alcoholic beverages increased by 29.7%, with some products – such as wheat flour, rice and sunflower oil – with increases of more than 50%, an extremely worrying figure due to its impact on the value of the basic basket. key indicator to measure the poverty rate, which in Argentina is around 45%.

The increase in year-on-year terms in this sector reached 251.3%.

The Milei Government, who assumed the Presidency on December 10, has already warned that, between that month and next February, monthly inflation rates of between 20% and 40% could be recorded, but assures that, with the fiscal plan of ‘shock’ that he announced a few days after starting his mandate, will prevent hyperinflation of 15,000% annually.

The president himself pointed out this Thursday in a radio interview that if the monthly figure approached 25% it would be “a tremendous success” and it would be necessary to “call (the Minister of Economy, Luis) Caputo and congratulate him”.

Their plan is to achieve fiscal balance in 2024 and thus end the monetary issue that Argentina has resorted to until now to finance the deficit. In fact, he also today acknowledged that “sooner or later” will fulfill his promise to close the Central Bank. This is the way with which Milei believes that, between 18 and 24 months, she will be able to tame the inflationary beast.

The figure of 211.4%, the highest in the region above that of Venezuela (193%) and among the highest in the world in a tough struggle with Lebanon, is the highest in the last 34 years.

The hyperinflation of 1989 and 1990 remains in the memory of Argentines, which brought the consumer price index to figures of 3.079% annually in 1989 and 2.314% in 1990 and maintained very high poverty rates in the population, something similar to what happens today.

Hyperinflation led to an advance in the presidential transition between the radical Raúl Alfonsín (1983-1989), the first president in the return to democracy after the military dictatorship (1976-1983), and the Peronist Carlos Menem (1989-1999), who would later implement his neoliberal policies and convertibility (the famous ‘one to one’ dollar-peso).

In 2001, in the midst of an explosive economic crisis, street protests led to the death of 39 people and the resignation of the now deceased radical president Fernando de la Rúa (1999-2001).

What did Milei say about inflation?

The data released on Thursday by the National Institute of Statistics and Censuses (INDEC) reflects the strong impact that the 50% currency devaluation and the adjustment plan implemented by far-right president Javier Milei had on prices after taking office on December 10. . It also ratifies Argentina as one of the countries with the highest inflation in the world.

In November, inflation had been 12.8% and the interannual variation was 94.79% in 2022.

To find a record similar to last December’s inflation, we must go back to February 1991, when it reached 27%.

“The effect of the jump in the official exchange rate and the liberation of prices was evident,” indicated the consulting firm C&T Economic Advisors. “Numerous sectors had increases close to 30% monthly, including the critical Food and Non-alcoholic Beverages.”

However, the December estimate is below the 30% that the president himself had publicly projected for his first month in office.

“If the number is closer to 25% it means that the success was tremendous”Milei expressed in an interview with La Red radio in Buenos Aires just before the official figure was announced. “If you were at 25% in the second week (of December), and that led to a dynamic of 45%, in the third week you were at 30%… we would be in an unprecedented case in which you broke the inflationary inertia already in the fourth week”.

The ultraliberal economist had promised during the campaign to dollarize the economy and eliminate the Central Bank to end inflation, which is at the top of Argentines’ concerns. Instead, upon taking office he launched a painful adjustment plan with the purpose of avoiding hyperinflation and warned that it will have a “negative impact on the level of activity, employment, real wages, and the number of poor and indigent people.” Poverty affects 40% of the population.

Milei asserted that it is the price to pay so that the Argentines can later harvest “the fruits of our efforts, having created the foundations for solid growth”. And only when macroeconomic variables stabilize will the economy dollarize.

The price deregulation policies, added to the devaluation of more than 50% that the Milei government applied within the framework of its reformist measures, induced an inflationary dynamic, economists agreed. The president also eliminated the price controls implemented during the previous administration of Peronist Alberto Fernández (2019-2023).

According to an INDEC report, food and non-alcoholic beverages, with average increases of 29.7%, had the greatest impact in the measurement that closed the year. Various mass consumption products rose around 30%, while medicines had average increases of 40%.

Some consultancies such as Eco Go warn of a slight slowdown in food prices in the first days of January, which makes them project a monthly increase in the cost of living less than in December (23%).

“There is still a process of rearrangement of relative prices,” Milei noted Thursday. “You are going to continue with a period of inflation of horrible numbers, but the issue is that you see that the next step is the fall of inflation.”

With information from EFE and AP