Macri Finally Gets Some Relief as Argentine Inflation Slows

(Bloomberg) -- Argentina’s inflation slowed more than analysts expected in April after the government froze prices on dozens of goods in an attempt to boost President Mauricio Macri’s re-election bid.

Consumer prices rose 3.4% from March and 55.8% from a year ago, according to government figures published Wednesday. The monthly number is the first slowdown of 2019 and is below the 4% increase expected by analysts in a Bloomberg survey.

Macri’s administration reversed course last month by halting unpopular austerity measures that caused prices to soar on public transport, electricity, water and gas bills. It also brokered agreements with businesses to freeze prices on mobile phone bills and 64 food and drink items. The measures, which officials justified as aid for Argentines suffering through a two-year recession, come just months before a very close presidential election.

Argentine bond investors welcomed the news, with dollar bonds due 2028 falling as much as 16 basis points to 11.02%, according to prices compiled by Bloomberg. Stocks also extended gains, with the S&P Merval benchmark index rising as much as 2.3% on Wednesday.

Macri Finally Gets Some Relief as Argentine Inflation Slows

Argentine central bank President Guido Sandleris said Wednesday that April inflation represented "a significant drop" from the previous month and that he expects inflation to continue to slow. Sandleris has tightened monetary policy four times since mid-March as part of attempts to tame inflation.

"The economic forces that reduce inflation are already showing results," Sandleris said. "We have a strict monetary policy and we’re recovering basic macroeconomic stability."

Argentina was rolling back subsidies on utilities and transportation as part of a deal for a record $56 billion credit line with the International Monetary Fund, an unpopular institution in the South American nation. IMF officials have said Argentina’s inflation has proven harder to tame than initially expected when the two sides brokered a deal last June.

Macri Finally Gets Some Relief as Argentine Inflation Slows

Inflation is also becoming a barometer of Macri’s ability to win a second term in office. As prices have climbed in recent months, his approval ratings have dipped to the lowest levels of his presidency. Several polls show inflation is voters’ top concern this year.

What Bloomberg’s Economists Say

April inflation, while still higher than desirable, should provide some relief to policy makers after a long streak of upward inflation surprises.
-- Adriana Dupita, economist
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A Wall Street favorite, Macri is expected to face his populist predecessor, Cristina Fernandez de Kirchner, in the October vote. The prospect of her return, and potential reversal of Macri’s pro-business stance, has put financial markets on edge.

Analysts see April’s number as a sign of things to come. May inflation could be 3% on a monthly basis, according to Adrian Yarde Buller, head of research at Buenos Aires-based broker Grupo SBS. He forecasts 42% inflation for 2019.

"We expect the next quarters to show lower levels of inflation," Yarde Buller wrote in a note following the inflation data. "It will be key that the central bank maintain the tough monetary policy stance it held over the past few months."

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