Argentina's Inflation Fight: A Turning Point?

Argentina's annual inflation rate has slowed to 118% in December 2024, marking a significant turnaround from the nearly 300% rate when President Javier Milei took office. This slowdown, driven by a combination of currency policy changes, fiscal discipline, monetary policy adjustments, and economic reforms, has had a profound impact on the country's economic landscape. As Argentina continues to grapple with high inflation, the question remains: what are the potential long-term effects of this slowdown on the economy?



Milei's government has been controlling the pace of the peso's devaluation, keeping the so-called crawling peg at two percent a month since he took office. This policy, combined with a one-off large currency devaluation last December, has helped to stabilize the exchange rate and reduce inflationary pressures. Additionally, the government has run a fiscal surplus every month this year, except for July, marking a significant change from the deficits run under the previous administration. This fiscal discipline has helped to reduce inflation by decreasing the money supply and easing inflationary pressures.



The Central Bank has also played a crucial role in reducing inflation by cutting its main policy rate by 98.0 percentage points since Milei took charge. This has helped to boost credit to the economy and reduce inflationary pressures. Furthermore, the Central Bank has ended monetary financing of the fiscal deficit, further reducing the money supply and inflation.

The government's commitment to structural reforms and fiscal discipline has also contributed to the slowdown in Argentina's annual inflation rate. Milei's policies have led to a substantial decrease in inflation, with the monthly inflation rate falling to 2.7% in December 2024, a significant drop from the peak of 25.5% reached in December 2023. This slowdown in inflation has the potential to have several positive long-term effects on the economy, including improved consumer confidence and spending, increased investment, reduced interest rates and easier access to credit, improved public finances, potential currency appreciation, and reduced poverty and inequality.

However, it's important to note that while Milei's policies have been successful in some senses, the poverty rate has risen to 53% from 42% in H2 2023, and inequality has spiked. As Argentina continues to navigate its economic challenges, the government must remain vigilant in addressing these social issues while maintaining its commitment to fiscal discipline and structural reforms.

In conclusion, Argentina's slowdown in annual inflation rate, driven by a combination of currency policy changes, fiscal discipline, monetary policy adjustments, and economic reforms, has the potential to have several positive long-term effects on the economy. As the country continues to grapple with high inflation, the government must remain committed to its economic policies and address the social issues that have arisen as a result of the economic challenges faced by the country.