Informe de Inflación

In this context, during the first quarter of 2011 the target set in the 2011 Monetary Program (PM 2011) was met. The quarterly growth rate of M2 was 4.7%, 0.6 percentage points (p.p.) below that projected in the baseline scenario.

The quarterly growth of private M2 was also consistent with the annual target set for December (29.2%).
The factors of expansion of the money supply, linked to the external sector, public sector operations and the increase in bank credit, were in line with what was forecast in the 2011 MP. To reconcile supply factors with demand factors

of money, the Central Bank sterilized – through the placement of LEBAC and NOBAC and pass operations – $10,900 million in the quarter, which was equivalent to more than 80% of the expansion generated by foreign currency purchases. The sterilization
of the monetary surplus, in addition to balancing supply with demand, also seeks to
model a short- and medium-term yield curve that serves as a reference for market operations.
With respect to the evolution of credit, during the first quarter of the year, commercial credit lines stood out by registering an annual growth of 49%, much higher than the nominal variation of Output. In the same period, the growth rate of the

Loans in pesos to the private sector were 42% year-on-year, reaching values similar to the peaks that had
been recorded at the beginning of 2008, before the deepening of the subprime crisis. Monetization levels, as measured by the broader aggregates (M3) in terms of GDP, also continued
to grow to reach almost 30% at the end of the quarter.
This was possible due to the strengthening of the demand for money more associated with savings, with a growth in time deposits, which represents more than 60% of the quarterly increase in M3.
With respect to the evolution of prices, while the index of implicit prices of the Product showed a year-on-year increase of 18% in the fourth quarter of 2010, exceeding by 7.3 p.p. the rise of the same period in 2009, both wholesale prices and

as retailers slowed their year-over-year rate of increase during the first quarter of 2011. In the first case, this behavior
was due to a lower dynamism of manufactures and agricultural products. Thus,
wholesale prices measured by the Basic Domestic Price Index (IPIB) showed an increase of 14% year-on-year
(y.a.). On the other hand, retail prices moderated
their year-on-year growth, in particular, because the sharp increases in the price of beef, which had a significant impact during the first quarter of 2010, were not
observed.
The increase in commodity prices, both food and energy, observed in recent months impacted the world’s economies, generating an increase in the growth rate of domestic prices. In the case of our country,

the incidence tends to be relatively higher than in other economies because of the high weighting of food in the consumption basket – higher than that of most emerging countries – and, on the other hand, because
, unlike other developing economies, nominal exchange rate appreciation has not been used in Argentina as a mechanism to offset the increase in international commodity prices. An abrupt nominal appreciation of the currency would generate

more costs than macroeconomic benefits by disfavoring the competitiveness−price of the sectors with greater productive chain and capacity to generate employment and causing a change in the private sector’s portfolio.
In addition, the supply of goods and services in Argentina tends to have a low degree of competition in sectors where the elasticity of demand is lower. For example, in the food and beverage segment, according to data from the latest Economic Census

2003-2004, 2.3% of companies accounted for 81% of the market. Between 2004 and 2009 the degree of concentration seems to have decreased. However, despite the 12% increase in the number of companies recorded during the period, total turnover rose

142%, indicating that there is still a high degree of concentration in the aforementioned industry.
Given the concentration of some market segments and, in a context of high growth, the recomposition of real wages and the resistance to change in profit margins intensify the distributive bid.
Exchange rate and trade policies favor local industry, increasing the potential and bargaining power of domestic producers. Meanwhile, low levels of unemployment and the increase in formal employment give workers more space

to defend their real income and general conditions of employment.
In this scenario, traditional monetary policy becomes limited to act on the phenomenon of price formation. International empirical evidence indicates that there is no clear pattern of causality between the variation of monetary aggregates and that of the

prices particularly in the short and medium term.
Taking into account this fact, it does not seem advisable to adopt restrictive measures such as:
i) reducing purchases of dollars in the foreign exchange market to
allow a nominal appreciation of the currency – as observed in other countries in the region;
ii) increase reference interest rates; or
(iii) discouraging credit.
Given the heterogeneity of the productive structure and the limited development of the credit channel, the standard monetary policy options would imply affecting the price level through the weakening of the domestic market, generating lower income for consumption or
investment, either due to lower sales, shortage of financing or falls in employment. Finally, the maintenance of fiscal and external balance, the low level of public and private, internal and external debt, and the high level of reserves limit the possibility of evidencing

an adverse price dynamic similar to that observed in other stages of Argentine history.
In relation to the external sector, exports of industrial manufactures grew by 198% since 2003 and in 2010 showed an expansion of 28.3% – 19.5% without accounting for the automotive complex – encouraged by a multilateral real exchange rate, which was deflated

By wages, it is 45% above the average level for the period 1995-2001. This trend continued in the first months of this year and is expected to continue in 2011.
In a country that has clear comparative advantages in the production of primary products, it is to be expected that in the face of a cycle of economic growth, an industrial trade deficit will be generated by the acquisition abroad of capital goods and inputs for production

with high technological content. In fact, foreign purchases of Capital Goods and Parts and Accessories accounted
for about 40% of total Argentine imports in recent years. In turn, the share
of durable production equipment in 2010, where imports of capital goods play a major role, grew 0.5 p.p. since 2007, reaching 46% of total capital expenditure.
However, despite an 18.7% increase in investment between 2007 and 2010, total imports fell by 2 p.p. of GDP in the same period. Likewise, exports of manufactures of industrial origin recovered to 2007 levels

after the decrease in external demand at the end of 2008 and 2009. As a result, the industrial
trade balance in 2010 showed a deficit in relation to the Product of -6.8%, with an improvement of 1.5 p.p. compared to the
2007 record.
Precisely because of its high relative benefits in economic and social development, Argentina’s challenge is to deepen industrial capillarization, incorporating technology to strengthen the most profitable value chains and increase the productivity of the economy.

economy (see Section 2). To this end, it is key to continue with the process of capital incorporation that has been observed
in recent years.
Currently, the economy reaches high values of installed capacity utilization of 78% (without seasonality) despite the fact that the investment rate remains at historically high levels. To accompany the financing of the productive sector, still biased

in the short term, the Central Bank continued with the execution of the Bicentennial
Productive Financing Program that has been awarded funds for $1,257 million, of which $687 million were granted in the first quarter, and which will finance 116 investment projects that include more than 40 branches of industrial activity.
With respect to the international context, global growth is expected to be more moderate and conditioned by various factors. Socio-political conflicts in the Middle East and North Africa oil production and distribution zone could affect economic growth

through the increase in the price of crude oil. Second, the halt in production at major Japanese plants following the tsunami reduces the global availability of high-tech inputs, affecting some segments of global production and flows

associated commercial partners. Finally, the reorientation
of government policies towards more contractionary strategies, either with the aim of avoiding further increases in prices, reducing sovereign refinancing cost differentials in the short term, or restoring the balance of fiscal accounts in the medium
term, discourages economic growth in economies where high unemployment rates and
low levels of private spending persist.
These episodes are added to a scenario where international commodity prices have shown since mid-2010 the effects of adverse weather with a clear upward trend, once again gaining relevance the discussion around security

(see Section 4). This year, the growing global demand for food could be stressed by a
greater consumption of primary products to increase the supply of alternative energy sources to oil and nuclear, which suffered after the Japanese natural disaster. In this context of increased uncertainty, developing countries experienced during the first

lower short-term capital inflows compared to previous months and the impact of
the international rise in commodity prices (see Section 3). Despite the external origin of these phenomena, several of these economies compensated for the external price shock by giving a more contractionary character to the design of their policies. Therefore, while it is expected that the

The emerging bloc continues to lead the economic expansion, the increase in interest rates and the appreciation of its currencies,
among others, will slow the pace of growth in developing regions.
In advanced economies, the still deteriorating wealth of households in a scenario of high unemployment rates will continue to condition the expansion of private spending (see Section 1). In a scenario of persistence of large macroeconomic imbalances

and the fragility of financial systems is shaping up to be the early abandonment of stimulus policies, which threatens the still weak global growth. In particular, in the euro area, the signing of the “Competitiveness Pact”
would affect the economic activity of the most vulnerable nations in the region by establishing limits
on public debt and fiscal deficits, reviewing wage indexation, and making labor markets more flexible.
More recently, the European Central Bank raised the benchmark interest rate, signaling the monetary authority’s decision to modify its policy bias.
With regard to global macroeconomic coordination, it can be observed that the policies being proposed to rebalance global demand – consistent with more restrictive measures in advanced countries for fiscal reasons and in emerging countries – are

This could lead to lower growth in aggregate demand and world output, which would make it difficult to definitively exit the crisis.