Argentina monthly inflation seen at five-year low in May

Analysts polled by Reuters predict Argentina's May inflation slowed to 2%, the lowest monthly rate in five years, driven by government exchange rate easing and economic stabilization efforts. This marks a significant decrease since President Milei took office in December 2023, potentially signaling a new downward trend after slight accelerations in March and April. The official inflation data from Argentina’s statistics agency is due Thursday.

Analysis

Argentina's headline inflation is anticipated to have decelerated to 2% month-over-month in May, according to the median and average estimates from a Reuters poll of 24 analysts. This projected rate would mark the lowest monthly inflation since the economic paralysis induced by pandemic lockdowns in the first half of 2020 and would represent the most favorable monthly figure under President Javier Milei's administration. The significant slowdown from nearly 2% in January and February, followed by an uptick to 3.7% in March and 2.8% in April, is largely attributed to government policies, notably the easing of Argentina's exchange rate regime in mid-April, which analysts suggest has fostered a downward inflationary trajectory. Economists, such as Julian Orue from Fundacion Libertad y Progreso and Pablo Besmedrisnik from VDC consultancy, perceive this as evidence of a new, steady downward trend, despite inherent volatility during economic stabilization. The range of analysts' May inflation forecasts varied between 1.6% and 2.5%. Confirmation of these figures is pending the official release from Argentina’s statistics agency, INDEC, scheduled for Thursday afternoon (1900 GMT), which will be critical in affirming this disinflationary momentum.

Key Decisions for Investors

• Investors should closely monitor the official INDEC inflation data release on Thursday, as a confirmed rate at or below the polled 2% could positively impact Argentine assets and strengthen the case for ongoing economic stabilization.
• Consider the potential for further appreciation in Argentine sovereign debt and a more stable currency outlook if the disinflationary trend is sustained, but remain mindful of the country's historical economic volatility.
• Evaluate exposure to sectors sensitive to declining inflation and interest rates in Argentina, should the May figures confirm a renewed and robust downward trend in consumer price growth.
• Acknowledge the positive sentiment surrounding this potential inflation milestone, but factor in the 'normal bumps' associated with stabilization processes before making significant new capital allocations to the region.