Editorial – Jorge A. Day
It had not been a good year for the regional economies, less and less competitive, and a severe frost in Western Argentina complicated their outlook. Faced with this adversity, the government reacted by offering a battery of benefits, including a “regional dollar” that would apply in the last forty days of the year.
The costs associated with agriculture and agro-industry have increased at a higher percentage than wages. Partly due to inflation in the US, also due to the consequences of the war in Ukraine, as well as the lower supply of supplies after the pandemic. A notorious case has been that of fertilizers. Although less than those inputs, wages in dollars have also risen.
What happened to the export prices of products from regional economies? We found a great dispersion, but in no case did they increase more than the Pampean commodities (such as soybeans). Some have experienced an improvement in international prices compared to five years ago, in the case of peanut oil and dry plum. But prices are lower than they were five years ago for most products. The loss exceeds 30% for apples, chickpeas, lemons and garlic
Compared to the year 2019, a set of regional activities exported less in the first three quarters of this year, although in a very heterogeneous way. Worse performance is shown by fruits (apples, pears, among others), industrialized vegetables and wool.
The government announced the implementation of a “regional dollar”, with a higher price than the official one, although to date it is unknown how much, which will only apply in the last 40 days of this year. Unlike the “soybean dollar”, the regional dollar is not a macroeconomic policy objective, but rather an assistance plan for an affected sector. Another point is its transience, benefiting only sectors that export in that period, in the case of cherries, but not apples, pears and lemons.
At the local level, inflation continues to be a problem, and there is an insistence on using the official dollar as a tool to control it. That implies the risk of a “food dollar” that continues to lag inflation, and more so as the elections approach. In that case, the Argentine cost would continue to increase. Added to this is the intensification of restrictions on importing inputs and parts. Negative impacts on regional economies are verified from both sides.
@DayGeorgy writes the editorial of the economic report #IERAL This week. Also ✍️: Maximiliano Gutiérrez, @Jgarzon02 and Lautaro Sibilla. Link: https://t.co/PVYWsByjcP
— Mediterranean Foundation (@FMediterranea) November 18, 2022
In Focus 1 – Maximiliano Gutiérrez
Inflation remains at the 6% monthly level and accentuates the distortion of relative prices
Monthly inflation published by INDEC for October was 6.3%, with an interannual rate of 88%, reaching its highest value in the last 30 years.
From December 2018 to the present, the consumer price index accumulates an increase of 459%, at an equivalent monthly rate of 3.8%, while the weighted mix of salaries, the exchange rate and tariffs (called cost inflation ) has risen 364.5% in the same period, at a monthly rate of 3.4%. The pent-up inflation proxy is 20.4%.
Regarding the distortion of relative prices, while core inflation accumulated an increase of 273% since the end of 2019, the change in the simple average of gas, electricity and water rates was 62% (data from CABA). Regulated prices have copied less than a quarter of the variation in core inflation.
The announcement of the “fair prices” scheme, to try to bring inflation to a level of 4% per month, faces a sustained inflationary inertia, with prices rising at a rate of 6% per month, or more. The challenge is to achieve consistency on the fiscal and monetary policy side, but the signals so far are weak, and the government’s ability to manage these macro variables also looks constrained. Hence, it is difficult to expect inflation at the end of the year to stray too far from the figure of 100%.
The inflationary acceleration of the last period recognizes various aspects of the monetary flank. Not only the issuance of fiscal origin itself, intended to cover the deficit, but also the payment of interest on remunerated liabilities of the BCRA (which constitutes an autonomous factor of monetary expansion), to which since June assistance has been added indirect to the Executive: the redemption by the Central of Treasury bonds in the secondary market.
From October 12 to November 16, it is estimated that the BCRA has made purchases of securities for approximately ARS 245.4 billion, as a reaction to the weakening of the demand for Treasury bonds by the private sector The stress shown by the debt in pesos and the consequent issuance explains the jump in alternative dollars in the last week, being that, in addition, a widening of the exchange rate gap is contraindicated for the objective of stopping the loss of reserves by the Central Bank. More so if this occurs in a scenario of a persistent fall in the demand for money.
In Focus 2 – Juan Manuel Garzón and Lautaro Sibilla
The regional data of the week: Pig production remains firm, with Córdoba and Buenos Aires leading
According to SENASA/MAGyP transit documents, some 6.4 million pigs were sent to slaughter in the first 10 months of 2022, a figure that is 3.1% above the shipments registered in the same period of 2021 (6.2 million). These shipments, which are a good indicator of the level of activity in the sector, have been growing steadily in recent years, at an annual average rate of 2.9% in the period 2018 – 2022 (taking 10 months of each year).
In the period under analysis, Córdoba registers the largest number of animals mobilized for slaughter (1.77 million heads), followed closely by Buenos Aires (1.75 million); then, further back, come Santa Fe (1.16 million), Entre Ríos (638 thousand) and San Luis (340 thousand). These 5 jurisdictions concentrate 88.5% of the total shipments, a share that has remained fairly stable in the last 5 years.
All the provinces send pigs to slaughter to industrial plants that may be in their own territory or in that of another, generally a neighboring jurisdiction; and they receive animals from farms located in their own province or in another. From the analysis of the transit documents, it appears that there are 9 net receiving jurisdictions, they receive more animals than they send, Mendoza being the one with the largest gap (the province receives 3.69 pigs destined for slaughter for every 1 it sends). In turn, 12 net stations are detected, where San Luis stands out (receives 0.09 pigs for every 1 animal sent). And, finally, the case of Tierra del Fuego, a province with little activity in the sector, but with the particularity that the indicator assumes the value 1 (all its own animals remain in the province and no animals are received from other jurisdictions, a “closed” economy).