August CPI - The half-full/half-empty glass

ARGENTINA - In Brief 13 Sep 2024 by Domingo Cavallo

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August National CPI inflation came in at 4.2% m/m. This is the fourth consecutive month with an inflation rate of close to 4%. While those monthly rates are the lowest since 2021, their result can still be read as a half-full/half-empty glass.Graph 1 On the positive side, It must be remembered that the current inflation rates are not "embellished" by price controls or strongly repressed regulated sectors, as they were throughout most of the last administration. The historical comparison might therefore be somewhat misleading. One of the factors that is still driving headline monthly inflation is the liberalization process of regulated sectors. Regulated sector inflation rose 5.9% m/m, compared to 4.1% m/m core inflation and 1.5% seasonal inflationTable 1 Graph 2 Furthermore, annual inflation, while still at an astonishingly high 237% y/y is also dropping rapidly, at least compared to the nearly 290% y/y in April. And the decline in the annual headline inflation rate is taking place over a broad base. As the CPI diffusion index shows, close to 86% (100%-13.6%) of all the CPI sub components’ annual inflation is currently falling, which is the most deflationary process since the COVID-19 recession.Graph 3 When analyzing the CPI decomposition, we see once more that housing, fuel and electricity, and transportation are leading the index, as might have been expected in the current context of gradual liberalization of regulated prices.Table 2 But also on the bright side, the relative price adjustment between regulated sectors and the CPI is coming close to the point at which future price developments will be more related to general inflation or energy cost fluctuation than th...