As December inflation meets expectations, BCRA announces it will reduce crawl to 1% in February

ARGENTINA - In Brief 15 Jan 2025 by Joaquin Cottani

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Yesterday, INDEC unveiled the December inflation number. It came at 2.7% m/m, in line with expectations, bringing 2004 annual inflation to 118%, down from 211% in 2023. The satisfactory headline December print encouraged BCRA to announce a reduction in the exchange rate crawl from 2% to 1% starting in February, two months earlier than I anticipated in my last report (see "2005 economic outlook: better but not out of the woods yet"). However, there are some qualifications to be made regarding the December rate, in my view. As in November, it was influenced by seasonal factors: the prices of seasonal goods and services fell by 1.4%. Moreover, regulated prices increased by 3.4%, which seems low given the need to realign the relative prices of energy and public transportation more aggressively to reduce budgetary subsidies. Core inflation, which excludes seasonal and regulated components, was 3.2% at the national level while, in CABA (City of Buenos Aires), inflation was 3.3% because services have higher participation in its calculation.  If we think of core inflation as a weighted average of unseasonal and unregulated inflation, my estimate (based on assuming there are no seasonal services or regulated good prices and manipulating the index weights accordingly) is that unseasonal goods inflation was 2.5% while unregulated services inflation was 5.5% in December. As Table 1 shows, this pattern is a repetition of the one observed in previous months and reflects the extent to which unregulated services are mostly nontradable, hence they inflate faster than unseasonal goods, which are mostly tradable, under current conditions, a byproduct of real exchange rate appreciation.  ...