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ARGENTINA: Inflation Set To Slow Further In October

ARGENTINA
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  • Besides the moderation in monthly headline inflation to 3.5% m/m in September, from 4.2%, core inflation also slowed to 3.3% m/m, the lowest level since January 2022. The improvement in headline was driven by the PAIS import tax reduction, as well as lower food prices.
  • JP Morgan notes that high frequency data point towards further deceleration in headline CPI to 3.1% m/m in October. That said, bringing inflation below 3% m/m could prove challenging, absent an evolution of the policy framework. They see inflation averaging 3.7% m/m in Q4, falling to 2% m/m average next year, amid a stabilisation program and a sustainable FX regime. Continuing with the relative price adjustments and removing capital controls are two necessary conditions to consolidate a sustainable disinflation path ahead, in their view.
  • Goldman Sachs believes that the strong policy commitment from the government, along with the swift fiscal adjustment and drag on growth has helped rein in inflation pressures. However, risks around the exchange rate remain a concern as inflation still tracks above the 2% monthly FX crawl and the real exchange rate has moved towards an overvaluation. A tighter monetary policy stance and a more flexible FX rate regime will be needed to anchor the economy.
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  • Besides the moderation in monthly headline inflation to 3.5% m/m in September, from 4.2%, core inflation also slowed to 3.3% m/m, the lowest level since January 2022. The improvement in headline was driven by the PAIS import tax reduction, as well as lower food prices.
  • JP Morgan notes that high frequency data point towards further deceleration in headline CPI to 3.1% m/m in October. That said, bringing inflation below 3% m/m could prove challenging, absent an evolution of the policy framework. They see inflation averaging 3.7% m/m in Q4, falling to 2% m/m average next year, amid a stabilisation program and a sustainable FX regime. Continuing with the relative price adjustments and removing capital controls are two necessary conditions to consolidate a sustainable disinflation path ahead, in their view.
  • Goldman Sachs believes that the strong policy commitment from the government, along with the swift fiscal adjustment and drag on growth has helped rein in inflation pressures. However, risks around the exchange rate remain a concern as inflation still tracks above the 2% monthly FX crawl and the real exchange rate has moved towards an overvaluation. A tighter monetary policy stance and a more flexible FX rate regime will be needed to anchor the economy.