(Bloomberg) — Argentina’s annual inflation rate is galloping toward its fastest pace in three decades, and a rift between the nation’s two most powerful politicians threatens to make it even worse.
The government publishes the March inflation report at 4 p.m. local time, but Economy Minister Martin Guzman already warned everyone to expect bad news. Consumer prices rose more than 6% in March from the previous month, Guzman said Monday, from 4.7% in February.
That monthly pace would be the highest of Fernandez’s presidency and probably the fastest since September 2018, when it reached 6.5%. Now, many economists forecast prices rising by more than 60% annually this year, which would be the highest level since the nation tamed hyperinflation in the early 1990s.
Meanwhile, a rift between President Alberto Fernandez and Vice President Cristina Fernandez de Kirchner is sowing public doubt over the government’s anti-inflation strategy under its $44 billion accord with the International Monetary Fund.
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Argentina’s target estimate for inflation this year in the IMF deal — between 38% to 48% — could be changed when the government holds a formal review with the Fund’s staff in May, according to a person with direct knowledge of the inflation strategy, who asked not to be named because the information isn’t public yet.
Government officials believe that meeting the targets in the IMF program and implementing its policies will gradually help cool expectations on price increases, the person added.
Policy makers have taken steps to curb price increases, such as raising interest rates, narrowing the fiscal deficit and reducing money printing to finance government spending. But many investors question whether Fernandez’s government has enough support from within its own coalition to continue imposing tough economic measures as inflation heats up.
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The split between Fernandez and Kirchner over the IMF deal is challenging Guzman’s ability to implement the agreed policies. Although Argentina’s congress largely approved the agreement in March, lawmakers loyal to Kirchner voted against it.
Fractured Coalition
The deal calls on the country to take a range of conventional steps to fight inflation, such as further narrowing the fiscal deficit. But some investors doubt that the fractured ruling coalition will let Minister Guzman fully implement the plan.
Successful inflation strategies “need governments with a lot of credibility,” said Martin Rapetti, executive director of Argentine consulting firm Equilibra, who sees inflation ending this year at 65%. “This government has low credibility because the whole world knows there’s infighting.”
Guzman this week denied rumors that he’ll be forced to quit. But he hinted at the government’s internal divide, saying that Argentina can’t tackle inflation unless there’s widespread support for the government’s plans under the IMF agreement.
Peso Devaluation
Some local economists argue that the IMF plan may even make inflation worse in the short term, since it’ll raise electricity bills by removing subsidies. It also involves devaluing the official peso exchange rate at a faster pace.
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The IMF sees Argentina’s faster inflation last month as largely tied to price shocks from Russia’s invasion of Ukraine, according to people with direct knowledge.
While all nations in Latin America are facing extra price rises from the European conflict, Argentina’s inflation was already above 50% when it started. Plus the government also raised fuel prices nearly 10% last month.
And while that cocktail of factors is causing inflation to soar, Fernandez’s difficulty in getting Kirchner’s faction to support his policies is raising concerns that temporary price rises could become more lasting.
“Everything that’s transitory in the world becomes permanent in Argentina,” said Guido Lorenzo, executive director of Argentine consulting firm LCG, who forecasts 65% inflation in Argentina this year.
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