BUENOS AIRES (Reuters) - Argentina inflation data is coming into the spotlight and could sway the South American nation’s political future as it heads towards a knife-edge election later this year that is likely to be a choice between painful market reforms and a return to populism.
The country will see the release of April numbers later on Wednesday, with inflation having accelerated each month since the start of the year, pummeling Argentines’ savings and denting center-right President Mauricio Macri’s popularity in the polls.
The number will be key politically. Signs of improvement would calm anxious investors and voters, and bring relief to Macri. If it remains high - anywhere near the steep 4.7% rise in March - the president would be in hot water.
“From an electoral standpoint, it’s hard to underestimate the importance of inflation in Argentina. It’s the defining factor in how much people can buy and what their salary is worth,” said Thomaz Favaro, a regional director for consultancy Control Risks.
A Reuters poll this week indicated April inflation would come in around 4%, though forecasts recently have often fallen short of the final data. The month has been touted by analysts and officials as a potential turning point.
Macri’s administration has rolled out measures to rein in prices and protect the embattled peso, which is down over 16% against the U.S. dollar this year, making it one of the world’s worst-performing currencies. It lost half its value last year.
Argentina is also stuck in recession with sky-high interest rates sapping growth and hitting jobs. Poverty rates are rising, bolstering political rivals, including self-styled populist ex-President Cristina Fernandez de Kirchner.
The economic woes - and political uncertainty - have spooked financial markets, with bond yields spiking as investors price in a higher chance of restructuring or default under a new leadership.
Favaro said if the inflation data is indeed lower than in March, the government would likely play it up as a victory, but that with 12-month inflation still so high, the battle to tame it ahead of the elections was “already lost.”
A central bank poll this month put 2019 inflation at 40.5%. Rolling 12-month inflation was 54.7% in March.
Ilya Gofshteyn, New York-based senior emerging markets strategist at Standard Chartered Bank, said a slower rise would enable Macri to say things were moving in the right direction, even if the economy remained fragile.
“I think at the end of the day there are also just forces outside of Macri’s control,” he said.
Most analysts agree the outcome of the presidential election in October will depend on whether or not Macri can revive the economy, including reining in inflation and protecting the peso.
“Stabilizing inflation was one of President Macri’s top priorities when he took office at the end of 2015. But the measures taken so far have failed,” Anjeza Kadilli, economist at Pictet Asset Management, wrote in a recent note.
“Macri’s fate hinges on his government’s capacity to stabilise the currency and bring down inflation.”
Reporting by Adam Jourdan and Gabriel Burin; Editing by Bernadette Baum