Argentina inflation likely be to high during Q1 2016

Argentina's Minister of Finance Alfonso Prat-Gay stated that the inflation target range for this year would be 20-25%, although there is still no official CPI Index. Actual targets are to be announced once the new CPI is launched, the central bank remarked in its monetary program. For the inflation target to be achieved in this year, price dynamics in the initial months of the year are required to decline from its current 3.5 percent level to 2.5 percent by April, further to 1.5 percent by June and later to 1 percent during of 2H16.

Price dynamics in November and December 2015 were 2.4 percent and 3.5 percent respectively quite similar to the end of 2013 scenario, just prior to the central bank devalued the peso from ARSUSD 6 in December to ARSUSD 7 in January 2014.

Inflation is expected to end closer to the 25% target by the end of this year if the economy reduces drastically the rate of monetary expansion and shifts the nominal anchor from the exchange rate to the interest rate. Further, settlement with holdouts and wage negotiations close to target might help in achieving the goal set.

 "We expect inflation in January 2016 to be of a similar magnitude to that of December, given the high statistical carryover from December, which, together with the price increases of the first week of the month, set a floor for monthly inflation of about 2.5%" - Barclays.  "We think annual inflation of 20-25% for April 2017 is easier to achieve than in December 2016 because inflation during Q1 16 will likely be high (about 3% m/m on average each month) as a result of the effects of the devaluation of the ARS and expected price increases for the first quarter (gasoil 6% in January and in March, cell-phone plans 17%, tolls 5%, among others)"