Javier Milei was right: The rise of the dollar had no impact on inflation

Javier Milei, president of Argentina

Despite the rise of the dollar, price increases in the economy are becoming smaller and smaller

During the latest sessions of the financial market, the focus was centered on two key variables, such as the evolution of the exchange rate and the recent inflation data corresponding to the month of June.

The general price index recorded a monthly increase of 1.6%, slightly above the 1.5% reported in May, but below the consensus analysts' estimates, which projected a figure close to 2%.

In particular, the “core” inflation, which excludes prices subject to seasonality or regulations, moderated to 1.7% in June. This figure represents the lowest rate since January 2018, if the atypical records from the first months of the pandemic are set aside.

“If the particular effect on the CPI in the first months of the pandemic is excluded, it was the lowest record since January 2018,” highlighted the Minister of Economy, Luis "Toto" Caputo, through his account on the social network X.

Meanwhile, the year-on-year variation of the National Consumer Price Index (CPI) reached 39.4%, marking the fourteenth consecutive month of deceleration compared to the same month of the previous year. It is also the lowest record since January 2021.

The general price index recorded a monthly increase of 1.6%, slightly above the 1.5% reported in May, but below the consensus analysts' estimates, which projected a figure close to 2%.

In this context, since the lifting of exchange controls, the dollar's exchange rate has recorded an increase considerably higher than inflation. However, this increase has not been passed on to the prices of goods and services, something that President Javier Milei had previously anticipated.

In April, inflation stood at 2.8%, while the official exchange rate advanced by 8.9%. In May, the Consumer Price Index (CPI) marked 1.5%, virtually matching the variation of the dollar. In June, the CPI slightly exceeded the exchange rate: 1.6% compared to an increase of just 1.4%.

For July, if inflation remains close to 2%, it would once again be below the movement of the currency, which climbed to the $1,300 zone, implying an increase of 7%.

In cumulative terms, from the elimination of exchange controls until the first half of July, the official exchange rate recorded an increase of 18%, compared to cumulative inflation of around 8%, estimating 2% for this month.

When observing the evolution of wholesale inflation, a disparate behavior is noted between April and May 2024. In April, the Domestic Wholesale Price Index (IPIM) recorded an increase of 2.8%. In contrast, in May it showed a contraction of 0.3%, mainly driven by a 4.1% drop in the prices of imported products, while domestically produced goods remained practically unchanged. In June, the IPIM once again recorded a positive variation, with an increase of 1.6%, in line with the general consumer price index (CPI).

Javier Milei was right: The rise of the dollar had no impact on inflation

Javier Milei was right: The rise of the dollar had no impact on inflation

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