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the limits to the slowdown in prices

Although the acute recession underway allows us to anticipate a reduction in the rate of prices, the Centro Periferia think tank warns that wage negotiations have been reactivated and that, together with the increases in services and regulated prices already programmed, will delineate the limits of disinflation. With an economy with inertial characteristics, the institution questions the capacity of the market and the recession to “bring a disinflation process to fruition, within the framework of rising social instability.”

The inflation propagation mechanisms begin to turn on. And that could collide with the objectives of Javier Milei’s government. This is what the organization’s report states: “If there were no radical changes in the strategy, inflation would once again remain one step above previous records.”.

The price increase marked 25% during the month of December and the consulting firms propose a similar or lower percentage for January. Real salaries at the end of the year marked a monthly drop “without precedents” in the last 30 years.

“The agreements established in the main 10 collective labor agreements allow us to estimate a monthly decrease in the registered salary of 10%, exceeding the maximum monthly drop established by 8.3% of leave that was registered in April 2002,” highlights Centro Periferia. This is a drop in income in record time that is imposed by the Government’s strategy.

That is why joint negotiations were reactivated and are beginning to outline new trends and behaviors. The devaluation, marked as the “structuring” policy of the stage, boosted the speed and intensity of the economic scheme. Thus, the dynamics of salary agreements changed. But the nominal floor to overcome inflation is high.

In this way, to sustain the real salary, according to Centro Periferia, the January negotiations should contain the recovery of -10% in December, plus the inflation expected for the month. Assuming an inflation of 25% monthly (REM), “negotiations should close with a nominal increase of 39%”.

That is why the study center warns: “With inflationary inertia, these salaries do not decrease from one month to the next, propagating inflation and disseminating the new inflationary floor. Inflation thus, instead of falling below the initial 12% due to recession, is parked at even higher levels.”

To date, the union metallurgists (UOM) managed to negotiate the same increase as December inflation, that is, 25%. Then, other unions appear that managed to overcome the price increase of the last month of the year, and add past inflation. It is the case of Oilers, Banking, Feeding and Trade, the most relevant union in terms of collective bargaining coverage. Finally, there are also those who negotiated a lower increase than December inflation: Construction and Public Sector, affected by zero public works and reduction of public employees.

The update under agreement, which during 2023 marked an average reduction of 2.7% for the 10 main economic sectors, even accelerating the frequency of increases and generalizing renegotiations based on inflation, is now proposed via the market, without “explicit guidelines by the Government.

For the macroeconomist specialized in wages, Federico Pastrana, the relationship between free parity, real wages and prices “It is much more complex than is usually considered.”. More so in a context where not only present inflation influences, but also what we seek to recover from the past and future inflation, expectations.

In this sense, the economist exemplifies: “The Rodrigazo in 1975. A devaluation and increase in rates much higher than previous inflation, with an initial salary cap of 40%, clearly recessive. The unions pressed and achieved an increase more in line with inflation. Did things get better? No. Prices responded and consumed wage increases. The Rodrigazo inaugurated the period of high inflation, only interrupted by Convertibility in 1991.”

Finally, for Centro Periferia, this heterogeneity in purchasing power is crossed by a real drop of 20%, both in salaries and retirements and pensions.with few precedents in democratic history since 1983”. “The maintenance of these inflationary levels will put pressure within the framework of a political scheme that still has political support from citizens, but with little territorial and legislative representation,” the report concludes.

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