Payden & Rygel: Argentina's increasingly successful inflation fight
Data released this week showed Argentine inflation rose just 1.5% in May. That may seem hot compared to the 0.1% increase in the U.S. but context is key. Argentina's reading was the softest in five years, significantly down from the average monthly rise of 10% in 2023.
But what led to such significant disinflation? Surprisingly not central bank action. Instead President Milei, who took office at the peak of inflation, sacrificed some near-term economic activity for price stability. The first step was to stop financing a massive budget deficit by printing money.
Significant cuts in government spending, coupled with deregulation efforts, sharply reduced subsidies and social safety nets, leading to a contraction in the money supply and a deep recession. At the turn of the year, the Argentine economy exited its recession with a healthy rebound, while inflation continued to moderate.
Before we applaud Milei's miracle, though, a 1.5% monthly rise equates to an annualized inflation rate of 20%, which is still far from the central bank's target of 5%. It's too soon to declare 'mission accomplished'.
