Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Argentina’s monthly inflation rate has fallen below 2 per cent for the first time in five years, a boost for libertarian President Javier Milei in his war against the country’s chronic price pressures.
Consumer prices rose 1.5 per cent in May from the previous month, the country’s statistics agency said on Thursday. This compares with 2.8 per cent in April and a 25.5 per cent high in December 2023, when Milei took office. However, annual inflation is still 43.5 per cent, one of the highest in the world.
“We have the best president in the world,” economy minister Luis Caputo said on X as he shared the figure.
The result bolsters Milei’s chances at October’s midterm elections, when price stability is his main message for voters who have suffered years of extreme volatility. It is a surprise victory for the president after he lifted a controversial currency control that had underpinned his fight against inflation.
In April, as part of a $20bn loan deal with the IMF, Milei scrapped a fixed exchange rate that had dramatically strengthened the peso in real terms, acting as an anchor on local price rises but preventing the central bank from building up its scarce hard currency reserves. He floated the currency on April 14, raising expectations that inflation would jump as a result.
“The government managed to keep the devaluation and pass-through to inflation to a minimum,” said Ramiro Blazquez Giomi, Latin America and Caribbean strategist at financial services group StoneX.
Authorities have taken steps to attract more dollars to the exchange market, including a temporary tax break for agricultural exporters. That has bolstered the peso, though analysts warn it may weaken further as the often-volatile midterm election season gets under way.
Milei’s sweeping austerity and deregulation measures have rapidly stabilised Argentina’s economy, which the IMF predicts will grow 5.5 per cent in 2025 as it rebounds from last year’s recession.
However, economists warn growth has plateaued in recent months as productivity and investment remain weak. Investors also remain nervous about the government’s currency and reserve policy.
Milei has been slow to build up the central bank’s reserves, which Argentina needs to make billions of dollars in foreign debt repayments this year. The IMF has postponed an initial target for the country to add about $4.5bn to its reserves by June 13, to July.
Milei has refused to buy dollars in the way previous Argentine governments did — by issuing pesos to buy greenbacks in the official market — because he wants to avoid expanding the monetary base and weakening the peso, which could fuel inflation.
He has also continued using reserves to intervene in peso futures markets, despite the IMF deal saying such intervention should only happen in exceptional circumstances.
On Monday, the government announced measures to increase reserves, including a $2bn repurchase agreement with international banks, and a plan to buy dollars using pesos from Argentina’s fiscal surplus.
Last month, the government also raised $1bn in a bond auction for international investors.
Blazquez Giomi said the measures to increase reserves had “calmed doubts somewhat” but investors’ focus was now turning to flagging economic activity.
“The stronger peso is [affecting the competitiveness] of exporting sectors . . . and consumer spending in some areas is still at recession levels,” he said. “It is possible that weaker activity starts weighing on certain groups of voters, instead of inflation.”
