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Argentina’s annual inflation rate reached 211.4 per cent in December, the country’s statistics agency said on Thursday, confirming the depth of the economic crisis facing the country and its new libertarian President Javier Milei.
On a monthly basis, prices rose on average 25.5 per cent in December, compared with a 12.8 per cent increase in November. The rate is the worst since 1991, when Argentina was exiting a period of hyperinflation.
Argentina’s chronic high inflation stems largely from previous governments’ reliance on money printing to finance spending — a practice Milei railed against on the campaign trail. But price pressures intensified in December as Milei devalued the peso’s artificially high official exchange rate by 54 per cent and allowed price-fixing agreements to lapse. Both moves affected food prices in particular.
Economists said December’s monthly rate would likely be close to the peak of Argentina’s current inflation crisis, with a burgeoning recession likely to slow further rises. The IMF projects that Argentina’s economy will shrink by 2.5 per cent in 2024.
Fernando Marull, director of financial consultancy FMyA, noted that Argentines’ purchasing power dropped roughly 10 per cent on average in December as wages rose slower than prices. Meanwhile, a regular survey of retailers by Argentina’s Federation of Medium-Sized Businesses reported a 13.7 per cent drop in sales in December compared with the same month in 2022.
Marull said inflation and economic activity would both remain “terrible” through at least January and February. “After that, if Milei’s economic plan is successful, we should start to see a rebound.”
Milei has launched what he calls “shock therapy” economic reforms, and his economy minister Luis Caputo unveiled spending cuts and tax rises in December that aim to eliminate the fiscal deficit this year. Milei has also issued a sweeping presidential decree deregulating vast swaths of the economy.
The president faces a lengthy list of obstacles to implementing his plan, including legal challenges to the decree, a planned general strike by labour unions later in January and a battle to approve reforms in congress, where Milei’s coalition has a small minority.
Analysts say the impact of spending cuts, particularly the phaseout of energy and transport subsidies, will increase the risk of disruptive protests in the coming months.
After several weeks of relative calm following Milei’s devaluation, the gap between the official and black market exchange rates, a closely watched indicator of market confidence in the government, has grown from 18 per cent to 30 per cent since the start of the year.
Adding to the government’s problems is a ruling on Thursday by a US federal judge, Loretta Preska, who ruled last year that Argentina must pay $16bn to two now-defunct investors in energy firm YPF following the government’s refusal to buy its shares at an agreed rate when it expropriated the company in 2012.
On Thursday Preska said that plaintiffs may begin attempting to seize the country’s assets to recoup their award, after Argentina failed to meet a January 10 deadline to post collateral pending its appeal. Milei has said that, while Argentina has “willingness to pay” its obligations, it would currently be impossible for the country to post collateral or deliver the $16bn, given its economic situation.
However, the IMF delivered a boost for the government on Wednesday, provisionally approving a $4.7bn disbursement from Argentina’s $43bn loan.
