巴黎银行-新兴市场-宏观策略-阿根廷：降低通货膨胀的漫长之路-20190718-8页 (2).pdf

|FOCUS 18/07/2019 1 Should money demand not pick up the way authorities project,the current growth pace of remunerated liabilities(Leliqs)issued by the BCRA is a source of repressed inflation,in our view,together with ARS appreciation and the freeze of tariff hikes.Since the peso is a transactional tool for locals rather than a reserve of value,and the fiscal consolidation remains far from done,we expect the currency to remain under pressure,despite periodic stabilisation and the carry on offer.We are bearish ARS with a tactical short position against USD(see Argentina:Capital flight to the upside,3 July).We prefer to be on the sidelines on credit for the time being.MARKET VIEW FOCUS|LATIN AMERICA 18 July 2019 Argentina Slower path to lower inflation KEY MESSAGES We expect Argentinas inflation to keep moderating in H2 2019,but we have raised our year-end forecast by 5pp to 41%.Although the central banks monetary stance would imply substantial disinflation,we think it will be curbed by high inflation inertia.For end-2020,we expect inflation of 33%,above the consensus estimate of 27%.Reliance on ARS appreciation to tame consumer prices poses upside risks to our forecasts.June was the third consecutive month of deceleration in consumer price inflation,with a rate of 2.7%m/m after the 4.7%m/m peak reached in March.High-frequency private gauges suggest that inflation has continued its downward path in July,likely declining to 2.3%m/m(Figure 1).Waning impact of regulated prices:We expect this trend to continue until the end of the year,thanks to a combination of lower regulated prices and more contained inflation expectations.Authorities have decided to concentrate utility tariff hikes in the first part of the year with the likely aim of keeping them as far as possible from Octobers general election.We estimate regulated prices will add about 3.2pp.to inflation in H2 2019,well below the 5.4pp.seen in H1.Please refer to important information at the end of this report Fig.1:CPI inflation(%m/m)Sources:INDEC,Macrobond,BNP Paribas Sources:INDEC,Macrobond,Bloomberg,BNP Paribas EM STRATEGY|EM ECONOMICS Felipe Klein,Economist|BNP Paribas Sucursal Buenos Aires Gabriel Gersztein,Global Head of Emerging Markets Strategy|Banco BNP Paribas Brasil Fig.2:Inflation inertia 0%20%40%60%80%100%120%Sep-09Sep-11Sep-13Sep-15Sep-17AR(1)coefficient over time01234567Jan Feb Mar Apr May JunJul Aug Sep Oct Nov DecFive-year rangeFive-year average2019Consensus|FOCUS 18/07/2019 2 However,we think the downward trend will be kept in check by a high degree of inertia in inflation dynamics,preventing a slowdown consistent with BCRAs tight monetary stance.Sticky prices:Wage negotiations are increasingly indexed backwards,which we think currently shapes Argentinas consumer prices more than the policy rate does.Using univariate regressions with a 40-period rolling window and 95%confidence bands for the AR(1)coefficient,we estimate that the backward-looking component of inflation has increased to roughly 60%since 2018 from 50%in 2017(Figure 2).High FX pass-through:Inflation in Argentina is highly dependent on FX.We think pass-through to inflation was lifted by the sharp fall in the ARS in 2018 and the lack of a nominal anchor for several months until the new monetary regime was adopted in October.We estimate that the linear exchange rate pass-through is 40%after 12 months.In other words,if the currency depreciates 10%,inflation will increase by 4pp in one year.This coefficient is well above Argentinas Latam peers(Figure 3).The pass-through can reach up to 55%when considering the asymmetric effect between appreciation and depreciation as well as other factors,such as unanchored inflation expectations.Revised 2019 forecast,with upside risks:We have raised our end-2019 forecast to 41%(from 36%)to reflect inflation persistence and the impact of upside surprises in H1 2019(Figure 4).Inflation risks are tilted to the upside,we think.A resumption in ARS depreciation pressures ahead of the elections might have an immediate negative impact on inflation.We estimate the effect of FX on inflation is close to 9%after one quarter.In turn,the positive impact of a nominal appreciation is likely to be limited by inflation persistence.Above-consensus 2020 forecast:Given that about half of public expenditure is indexed to past inflation,we see a trade-off between the speed at which inflation can fall and the health of fiscal accounts(see Deep Dive:Argentina Uphill struggle to restore fiscal solvency,dated 27 June).Since the financial programme for 2020 relies on a USD5.2bn primary surplus to tap the countrys sizable gross financing needs,we think fiscal considerations will prevail and lead the BCRA to calibrate a more gradual disinflation path.We forecast 33%inflation for end-2020,above the consensus estimate of 27%,according to the central banks expectations survey.We see an upside risk to our forecast in the event of higher-than-expected FX volatility.Our estimate also factors in the impact on regulated prices from cutting subsidies,which we think are the easier source for the government to continue fiscal consolidation.Upward revision to end-2019 CPI forecast EM STRATEGY|EM ECONOMICS Fig.3:Exchange rate pass-through after twelve months Sources:INDEC,Bloomberg,Macrobond,BNP Paribas Sources:INDEC,BCRA,Macrobond,Bloomberg,BNP Paribas Fig.4:CPI inflation forecast(%y/y)Felipe Klein,Economist|BNP Paribas Sucursal Buenos Aires Gabriel Gersztein,Global Head of Emerging Markets Strategy|Banco BNP Paribas Brasil 00%10%20%30%40%50%60%Dec-17Aug-18Apr-19Dec-19Aug-20Consensus estimateBNP Paribas forecast0%5%10%15%20%25%30%35%40%45%ArgentinaBrazilChileColombiaMexico Legal Notice This document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively“BNPP”);it does not purport to be an exhaustive analysis,and may be subject to conflicts of interest resulting from their interaction with sales and 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