Analysts predict that the reduction in inflation could be maintained in the coming months if exchange rate stability is maintained (Reuters)
The National Institute of Statistics and Censuses (Indec) reported that October inflation stood at 2.7%, which means a new slowdown in the consumer price index in relation to the 3.5% registered in September. In this way, the accumulated price increase in the last twelve months reached 193%, according to the official body. This interannual figure is the sixth consecutive decrease from the 289.3% that was registered last April.
This new data reinforces the trend of moderation in price increases that the Government seeks to consolidate through a series of economic policy measures. The Ministry of Economy team had anticipated that the October figure would be one of the lowest in almost three years, supported by a context of lower inflationary pressure in some key sectors, such as food and regulated services.
Core inflation, that which excludes seasonal and regulated prices, stood at 2.9%, below the 3.3% in October. In this way, it had the lowest record since September 2020. Once again, a difference was marked between the prices of goods (2.1%) and services (4.3%), where once again the latter increased above the general average.
The division with the greatest increase in the month was Housing, water, electricity, gas and other fuels (5.4%) due to increases in housing rental and related expenses; Electricity, gas and other fuels; and Water supply, followed by Clothing and footwear (4.4%). At the other extreme, the two divisions that recorded the smallest variations in October 2024 were Transportation (1.2%) and Food and non-alcoholic beverages (1.2%).
The first signs of this slowdown had already been observed in the partial measurements of the City of Buenos Aires and other cities in the interior, such as Bahía Blanca, where monthly inflation in October registered a decrease compared to September. In the City of Buenos Aires, for example, the index fell to 3.2% from 4% the previous month. This moderation in Buenos Aires inflation was mainly driven by lower increases in food and non-alcoholic beverages, as well as services related to housing.
The drop in the monthly inflation rate can be attributed to several reasons. Firstly, the Government has intensified its focus on controlling nominality through a gradual adjustment of the official exchange rate, which has reduced pressure on domestic prices. Since the December devaluation, the pace of dollar adjustment was set at 2% monthly, which has become a key anchor to moderate inflation expectations.
Additionally, the Central Bank decided at the end of October to reduce the reference interest rate from 40% to 35% annual nominal interest, the first reduction in six months. This measure, which seeks to stimulate economic activity without overwhelming inflation, was interpreted by analysts as a sign of confidence that the process of slowing prices is sustainable. According to the projections of the Market Expectations Survey (REM), monthly inflation could remain around 3% in the coming months, with the possibility of an additional fall starting in April of next year.
In October, the variation of the index was marked by increases in certain sectors, such as insurance and financial services, clothing and footwear, and restaurants and hotels. However, other items, such as food and beverages, recorded more moderate increases, which contributed to the slowdown in the general price level. According to private consulting firms, this pattern would continue in November, although the expected increases in regulated services and some seasonal prices could generate slight increases in the coming months.
The high-frequency data monitored by the Ministry of Commerce had already anticipated a reduction in core inflation, which excludes the most volatile components such as fresh food and regulated services. According to estimates from consulting firms such as EcoGo and Equilibra, the first week of November showed a slight rebound in food, but it still remains below the monthly average of previous months.
Looking ahead, the Government faces the challenge of sustaining this slowdown trend without affecting the economic recovery. One of the tools that could be used in the coming months is a reduction in the pace of adjustment of the official exchange rate, seeking for this mechanism to continue anchoring inflation expectations.
In addition, it is expected that Indec will soon implement an updated price index, which will include a greater weight of services in its weighting, better reflecting current household consumption. This modification could have an impact on the measurement of inflation, although the organization has indicated that technical tests are still being carried out and that there is no official date for its implementation.
Meanwhile, monetary policy remains focused on maintaining a positive real interest rate to encourage savings in pesos and avoid additional pressure on the exchange market. However, some economists warn that, although the slowdown in monthly inflation is positive, the general price level remains extremely high, with year-on-year inflation exceeding 200%, which impacts the purchasing power of the population.
