Despite the agreement with the IMF, the market raised its inflation estimate for this year
The announcement of an agreement in principle with the IMF was not enough to placate the market’s inflationary expectations. This is revealed by the results of the Market Expectations Survey (REM), the largest survey of the local market that the Central Bank (BCRA) carries out month after month, and which this time they had time to answer until December 31. January (Monday after that announcement) 39 analysts and consultants.
The result shows a further increase of 0.2 to 2.2 percentage points in the inflation forecasts for the current year, which they start from 55% (according to the average of those consulted) to 57.9%, according to the average of those that the study has identified as more reliable predictors (Top-10).
Inflationary expectations had shot up sharply again the previous month for the monetary mega-issue ($685,000 million) carried out in December to finance public spending at the end of the year. And this month they register an upward correction due to the recalculation to which analysts were forced after having estimated an inflation of 3.4% for December, which finally resulted in 3.8%.
The striking thing is that they grow again without speculation with an incidence of the exchange rate, since they now expect a 57% devaluation of the peso (hand in hand with the increase of life) against the 60.7% that they expected until a month ago.
Specifically, the new projection of the analysts is located at $160 per dollar for the end of the year, that is, $3.74 below the projection of the previous survey, and with downward corrections in the closings for all previous months, highlighting April 2022 (-$4.10 per dollar), May (-$5, 00 per dollar) and June (-$4.12 per dollar).
This would indicate that the market trusts the slippery hypothesis of an understanding with the IMF that would allow the BCRA to avoid any “devaluation jump”.
According to the respondents, the most complicated period in terms of inflation is the one that is already going through. According to their projections, inflation for January – like that for December – would have been between 3.8 and 3.9% (something that the Secretary of Internal Trade, Roberto Feletti, has already anticipated, saying that it will be equal to that of the month previous) and it will maintain or exceed that same level during this month (it could reach 4.1% according to the TOP-10) to advance one more step between March and April, the period of the year in which it would be above 4% per month. Only after those months could it slow down slightly but without falling below 3.5% until the middle of the year, at least.
The reasons must be found in the expected adjustments in regulated prices (such as the increase in gasoline already announced) and rates, in addition to the natural lag with which uncontrolled emissions impact prices in general.
The survey also found a upward correction in the growth expectations of the economy for the current year: those who participate in the REM expect an improvement in the real Gross Domestic Product (GDP) of 3% (+0.1 pp compared to the previous survey) and the TOP-10 suggests that it will stretch to 3.1% ( +0.5pp)
The recalculation in this case derives from having fallen short with the estimates of the 2021 rebound: they now estimate that during the fourth quarter the GDP would have grown 1.4% compared to the third quarter of 2021, against the previous expectation of 0.9% .
That would have a spill that would be felt during the first quarter of 2022, with an expansion of 0.5% in the level of activity (+0.3 pp compared to the previous survey), but it does not change the trend toward plateauing forecast for the second part of the year, a period in which the economy would contract 0.2%.