This year, inflation provided no respite and became the number one nightmare in Argentina’s pocket. While economists become more confident every month that the year may end with a triple-digit rise in prices, official records confirm that a similar dynamic was not seen 30 years ago. However, inflation is not affected equally in low-income sectors as compared to the middle or upper class.
In August, prices increased by 56.4% year over year and inter-annual variation by 78.5%, According to the National Institute of Statistics and Census (Index). This upward trend has been observed over the past few months: it averaged 5.1% in the first quarter, 5.4% in the second, and 7.1% in the third.
“But in the study of inflation dynamics, it is relevant to include what each household spends in the analysis, to see the effect of price increases on different income levels. Areas with fewer resources are more affected by food price dynamics than the rest, Given that they allocate a major part of their income to meet these basic needs. Conversely, the richest households spend more on goods of other necessities, such as household goods, education and entertainment, among others”. EcoLatina explained that they conducted a study on inflation in the income pyramid based on the National Survey of Household Expenditure (ENGHO).
In the first quarter of the year, The price of food began to rise as a result of a set of factors, both local and international. Rising world prices due to the outbreak of the war in Ukraine, a massive re-evaluation of consumer prices after a late 2021 freeze and a drought affecting the country’s crops and livestock, were some of them. In this context, in three of the first four months of the year, food prices rose above normal levels, an average of 6.4%. This was 1 percentage point (pp) above inflation.
“This uptick in food prices made inflationary dynamics more regressive, largely impacted relative to sectors with fewer resources. Thus, at the beginning of 2022, the accumulated inflation of the poorest decimal was higher than that of the wealthiest decile: for the first quarter, It was 23.8% for Decel 1st-lowest income and 22.5% for 10th -highest income-”, he indicated to the economic advisor.
Had this trend continued, the gap between the upper and lower classes would have remained. However, something changed in the second quarter. in three of the four months of that periodFood went below normal levels, about 1 percentage point below the monthly average, This was, in part, due to lower growth of the item, but also due to the acceleration registered by some goods with fuel, prepaid and imported components (such as household appliances and electronics).
“This lower evolution of food, more calmly rooted primarily in the price of meat, relatively favored low-income areas, because of this reason, The process of inflation assumed a more progressive character, where the accumulated inflation of the richest person was higher than that of the poorest. (+1pp difference). Therefore, these two developments are offset so far in the accumulated year. Decil 1 accumulates an inflation rate of 55.6%, while Decil 10 generates an increase of 55.1%”, he said.
Looking towards the end of the year, in recent weeks the government has made a series of announcements that provide clues as to how the inflationary process will continue till December and In the end which areas will be affected more than others. According to Ecolatina, the executive adopted certain measures “Which can exacerbate the progressive nature of inflation.
It’s a matter of division rate subsidy, Low-income people will maintain the current prices, taking into account that these households allocate an average of 11% of their income to pay for water, gas and electricity. On the other hand, households with higher purchasing power will have to start paying the full rate, keeping in mind that they spend an average of 7% on these services. Will feel the effect of inflation from later September (Gas will increase by 10.6% and electricity by 20.6%) and in November (Gas 12%, Electricity 27% and Water 56%).
Another growth that is coming is prepaid, Which will update 10.5% in October and December. Once again, this will affect the richest deciles more, as they spend a substantial portion of their income on this item (4.4% of the basket in decimal 10, compared to 0.5% in decile 1).
weeks ago, Central Bank (BCRA) decided to deepen restrictions on imports, A measure that will have a direct impact on the price level of those goods with more imported component. i.e. home appliances and consumer electronics, machinery, vehicles, motorcycles, among others. Once again, wealthy families will be hit hardest. For example, the richest decile allocates 8% of the basket to “home appliances and maintenance”, compared to 4.1% in the poorest basket.
In short, the coexistence of The two factors mentioned (the new tariff plan and more restrictions on imports) will tend to offset the regressive effects of inflation for the rest of the year., However, given the volatility of the inflationary process, a weak macroeconomic scenario, an exchange plan that could be revised and some food prices that have been left behind (such as beef), The risks of a new acceleration of food – rising above normal levels – are still latent and may act as a counterweight”Hill.