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Prices through the roof: Argentina, between Turkey and Russia, on the podium of the countries with the highest inflation in the G20

Prices through the roof: Argentina, between Turkey and Russia, on the podium of the countries with the highest inflation in the G20

By dint of nonsense, in the last twelve months inflation in Turkey managed to exceed that of Argentina EFE/EPA/SEDAT SUNA
By dint of nonsense, in the last twelve months inflation in Turkey managed to exceed that of Argentina EFE/EPA/SEDAT SUNA

Argentina was the second country with the highest inflation of the G20 in the last twelve months, only surpassed by Turkey, which, until April, registered an annual inflation of 70%, fifteen points higher than the 55% that, until March, had Registered Argentina. It should be noted that Argentina and Turkey register a striking synchronicity in its economic and financial crises of the last 40 years.

Turkish President, Recep Tayyip Erdogan he displaced three central bank presidents in the last year and insists on fighting inflation by lowering interest rates (so that a weak lira increases the competitiveness and trade surplus of the Turkish economy) which economists consider nonsense.

Argentine inflation, in turn, was well ahead of the 16.7% inflation in 12 months that, also until March, the Russian economy had registered.

Such is the data from a survey by the Bloomberg agency based on information from the central banks and statistical agencies of the members of the G20, a group created in 1998, at the request of Canada and the US, in the midst of the financial crises in Southeast Asia, and made up of 19 countries and the European Union as a bloc.

The inflation data corresponding to Argentina will increase to between 57 and 58% year-on-year when the April inflation is knownwhich would be between 5.5 and 6% and would exclude from the account the 4.1% registered in April of last year.

Brazil, with 11.3%, and the US, with 8.5% year-on-year inflation, in both cases up to March, complete the Top 5 countries with the highest inflation in the G20. Behind these figures are the European Union and Mexico (the other Latin American country in the group), which registered a year-on-year increase of 7.5 percent.

At the same time, Until last April, Germany had registered an inflation of 7.4%, surpassing that of other European countries such as the United Kingdom (7%), Italy (6.2) and France (4.8%) and also that of countries with lower development such as India (7%) and South Africa (5.9%). The G20 countries with the lowest inflation in the last twelve months were Japan (1.2%), China (1.5%) and Saudi Arabia (2%).

The increase in the price of energy is the main factor behind the increase in inflation in Europe, and in particular in Germany EFE/JUAN CARLOS HIDALGO/File
The increase in the price of energy is the main factor behind the increase in inflation in Europe, and in particular in Germany EFE/JUAN CARLOS HIDALGO/File

To a large extent, inflation in countries like Germany was due to higher energy prices, although Japan has equal or greater energy dependence, which managed to absorb the impact.

Some inflation and devaluation data are really surprising. By case, As of yesterday, so far this year the G20 currency that appreciated the most was the ruble, despite the fact that the Russian economy is the target of a broad series of economic sanctions by the US, the European Union and other countries Westerners, and the one that depreciated the most was the yuanalthough China was identified a priori as one of the economies that would benefit most from the effects of the Russian invasion, the war in Ukraine and the subsequent sequence of sanctions and counter-responses between Moscow and Western capitals.

At the same time, In Latin America, the Argentine peso ran counter to the evolution of the currencies of its main trading partners, which depreciated in real terms against the dollar. In nominal value, the Argentine peso also depreciated, but at a lower rate than inflation, with which it “appreciated”, in the sense that the purchasing power of the official dollar was reduced.

A report by the consulting firm Quantum, which heads Daniel MarxFormer Secretary of Finance, specifies that between March 30 and May 2 last (that is, during April) although the Argentine currency depreciated 4.4% nominally with respect to the dollar, in “real” terms (taking into account inflation ) appreciated 0.6 percent.

The graph prepared by Quantum shows how the peso moved in the opposite direction to that of its trading partners, because inflation exceeded the increase in the official dollar
The graph prepared by Quantum shows how the peso moved in the opposite direction to that of its trading partners, because inflation exceeded the increase in the official dollar

This evolution left the local peso completely at odds with its trading partners, which implies a loss of external competitiveness. In the same period, the Brazilian real depreciated (always in real terms) 7.5%, the Chilean peso 9.9%, the Mexican peso 3.5%, the euro 5.8% and the Chinese yuan 5.4 percent.

The loss of external competitiveness derived from the “real” appreciation of the Argentine peso is much greater if the calculation goes back to December 2019, when the current government took office. Quantum specifies that since then the Argentine peso has “appreciated” no less than 13.4%, while the Brazilian real has depreciated 19.3%, the Chilean peso 12.6%, the Mexican peso 7.5%, the euro 10.5% and the Chinese yuan 4.4 percent.

Paradoxically, despite this “appreciation”, the country has much higher inflation than all the countries in the comparison.

Far from being attenuated, the process could deepen as a result of the increase in rates in the US, unless the Ministry of Economy and the Central Bank strongly accelerate the increase in the official dollar.

the worst did not happen

“The path of rising rates in the US and the extends that are generated between the yield curves of other developed countries (for example, 200 basis points against the average of 10-year European bonds) is leading to a process of real appreciation of the dollar”, says the Quantum report, and points out that The first months of the year reflect the BCRA’s difficulties in accumulating international reserves: imports grew 39% year-on-year in value in the first quarter of the year and exports 26%, something influenced, precisely, by the exchange policydespite the favorable evolution that international prices had for Argentina.

“The persistence of the exchange rate gap and international movements lead us to think about how to correct this situation,” the report tersely states. A true attenuation of the exchange rate and inflation challenge faced by the government of Albert Fernandez.

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