The Argentine government can use April's deceleration in price increases to argue that the disinflation process remains on track. However, this slowdown primarily benefits from seasonal tailwinds and highlights that underlying inflation trends remain elevated.
Monthly inflation needs to fall further into the 2%–2.5% range to keep annualized inflation at a low of 30%, aligning with year-end forecasts. The recent decline in core inflation is a positive signal towards achieving this target.
The current inflation trajectory may necessitate a moderate tightening of monetary policy, while weak economic growth supports maintaining an accommodative stance. It is believed the central bank will aim to balance this conflict with a relatively accommodative policy position, while maintaining hawkish rhetoric to anchor inflation expectations.
Consumer prices rose 2.6% month-on-month in April, below our expectation of 2.8% but above the market consensus of 2.5%.
More encouragingly, core prices increased by only 2.3%. The higher headline inflation was primarily dragged down by regulated prices, which surged again by 4.7%, while seasonal prices were flat for the month.
This data brought the year-on-year inflation rate down slightly to 32.4% from 32.6% in March. It is still projected that Argentina's inflation will hover slightly above 30% for this year and the next.
On one hand, the core drivers of disinflation are showing signs of losing momentum. On the other hand, exchange rate stability combined with economic weakness is likely to prevent inflation from spiraling out of control and soaring further.
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