Javier Milei’s bid to reduce Argentina’s chronic inflation is stalling, with monthly interest rates hitting 3.4 percent in March – the highest level in a year – while economists warn that tackling the final stretch could be far more difficult than halting the crisis at its peak.
Inflation has fallen sharply from the double-digit monthly interest rates Milei inherited when he became president in 2023. But monthly interest rates bottomed out at 1.5 percent in May and reached levels of 2.9 percent in both January and February.
“The figure is bad. We don’t like the figure because we find inflation disgusting,” Milei said after the data was published on Tuesday. “However, hard factors allow us to explain what happened and, above all, expect inflation to return to a downward path in the future.”
The libertarian president, who wrote a book called The end of inflation has said as part of its pitch to voters in 2023 that inflation could soon “start from zero,” meaning a monthly rate of less than 1 percent.
But economists are skeptical, especially as the rise in energy prices due to the war in Iran adds new pressure to already stubborn price dynamics. The annual rate of almost 33 percent is a far cry from the peak of almost 300 percent, but is still among the worst in the world.
“It is easier to reduce inflation from 30 percent per month to 3 percent than from 3 percent per month to 3 percent per year,” said Lorenzo Sigaut Gravina, an economist at Equilibra, a consultancy in Buenos Aires.
Calling himself an anarcho-capitalist, Milei relied on a traditional tool to achieve the initial decline in inflation: keeping the peso exchange rate stable to anchor prices. But when the government allowed the currency to move more freely last April as part of a deal with the IMF, inflation quickly started to rise again.
Without a solid anchor, the government must now break the deep-seated inertia built up by years of chronic inflation. In Argentina, these habits persist: many retailers raise prices pre-emptively, families stock up on groceries for the next price increase, and rental contracts come with automatic quarterly increases.
Wages are often negotiated based on past inflation rather than current inflation, a policy that could fuel future price increases as companies pass on the costs of higher wages to consumers. Costs for utilities and other services, some of which automatically adjust for past inflation, are still rising after years of subsidies. That contrasts with prices of industrial goods, which are largely kept low by the semi-floating exchange rate and the removal of some trade barriers.
The government has resisted committing the central bank to an explicit anti-inflation policy. The lack of such a framework and the abandonment of the exchange rate anchor have caused the process to lose its momentum, argues Gabriel Caamaño, economist at consultancy Outlier.
“The disinflation process is at an impasse,” he said.
The impasse continues despite weak growth in an “economy that has reached a plateau,” said Marina Dal Poggetto of consultancy EcoGo.
Argentinians feel the pressure. Meat prices in Buenos Aires increased by 6.9 percent in March alone. Food prices rose 3.4 percent nationally in March, after rising 3.3 percent in February and 4.7 percent in January.
Wages in the formal sector rose by about 2 percent per month in February, below inflation.
The cumulative effect is a quiet but significant erosion of living standards, even as poverty rates fell last year from the highs reached at the start of Milei’s presidency. According to Martín Rapetti, professor of economics at the University of Buenos Aires, real incomes of Argentina’s formal sector workers and retirees – about 14.5 million people – are about 8 to 10 percent lower than when Milei took office.
The polls are starting to reflect that deterioration. A recent study from the University of San Andrés found that concerns about stagnant real wages and unemployment – which has risen by almost 2 percentage points to 7.5 percent since Milei took office – now outweigh inflation, which has fallen sharply as a priority for voters.
Milei’s approval rating has fallen to 36.4 percent, compared to 49.5 percent in his first month as president, according to a recent AtlasIntel poll.
The government has also faced questions about how it measures inflation. Earlier this year it postponed a planned update of the consumer price index basket, leading to the resignation of the head of the national statistics agency.
While the decision has raised alarms in a country with a long history of manipulated inflation data, economists say the actual numerical impact has so far been negligible.
“It’s a shame because the disinflation has been significant,” Rapetti said. “But not updating the index, knowing it needs to be updated, comes at a reputational cost.”
