As Argentina approaches its national legislative elections in a matter of months, the government is intensifying its efforts towards a singular objective: the reduction of inflation. However, despite the recent deceleration in consumer prices and wholesale inflation being met with approval, other economic indicators could potentially jeopardize Economy Minister Luis Caputo’s approach. It is important to highlight that there remain no indications of a recovery in purchasing power, which may undermine the government’s inflation strategy as a mechanism for electoral advantage. The significance of price-controlled services, referred to as regulados, has emerged as a pivotal factor in the lead-up to the vote.
May’s inflation figure was reported at 1.5 percent by the INDEC national statistics bureau, marking the lowest monthly rate since May 2020. Year-on-year inflation reached 43.5 percent, indicating a 13-month streak of deceleration relative to the same month in the previous year. This marks the lowest annualised rate for Argentina since March 2021. Inflation for the initial five months of 2025 reached 13.3 percent, marking the lowest cumulative figure for this timeframe since 2020.
“Seasonal prices for fruit and vegetables contributed to a decrease in the average, resulting in the monthly CPI variation being the lowest recorded since May 2020.” Following significant increases in regulated services such as electricity, water, gas, housing rents, public transport, and education, the government is currently restraining these prices; however, it is simultaneously curbing wage growth. Over the past four months, regulated prices have increased at a rate lower than inflation, indicating a notable change in pricing strategy. Is this a correction of relative prices, or merely a maneuver associated with the election year? inquired the Instituto Argentina Grande (IAG) in a recent report.
Notwithstanding this, a significant portion of the government’s relative price adjustment has been directed towards regulated services, particularly through reductions in energy subsidies and hikes in utility rates. Households currently bear nearly 80 percent of the “real” cost. As of November 2023, the disparity between regulated prices and overall inflation stood at 40 percent; currently, it has decreased to below 18 percent.
The Milei administration has achieved notable advancements in price adjustments, especially concerning distribution. Currently, it is implementing monthly adjustments linked to the index in a more systematic manner. In the first quarter, there was a significant ‘catch-up’. Electricity bills currently represent approximately 80 percent of the actual tariff. Since February, distribution costs have been revised on a monthly basis through an automated system linked to the Consumer Price Index and the Industrial Price Index for Materials. Gas follows a similar scheme, under a transitional tariff review,” economist Leo Anzalone of the Centro de Estudios Políticos y Económicos (CEPEC) think tank stated to Perfil.
Despite the fact that regulated prices have surged over 300 percent since the current administration assumed power, the pace of their monthly increases has shown signs of deceleration: 2.3 percent in February, 2.4 in March, 1.8 in April, and 1.3 in May – all figures falling short of the overall CPI (2.4, 3.7, 2.8, and 1.5 percent, respectively). In comparison to March 2019, regulated services remain significantly lower than other categories within the Consumer Price Index, which have seen their increases stabilize. “In this broader context of disinflation, monthly increases in regulated prices seem comparatively subdued.” “But that’s not due to a freeze – the sharpest adjustments have already taken place, and now a more gradual, index-linked scheme is in place,” said Anzalone.
In the forthcoming winter months, an increase in subsidies is anticipated as a measure to mitigate retail tariffs. “Until April, subsidies were significantly lower than the levels observed in the previous year.” However, during the winter months, expenses escalate – natural gas, LNG imports, and electricity fuel all experience an increase. Tariffs remain unchanged – the seasonal power rate continues to be US$60, yet actual expenses are significantly elevated. Subsidies are set to reemerge, predominantly in the electricity sector, which constitutes approximately seventy-five percent of overall subsidies. Is this associated with the elections? “Probably,” stated Daniel Dreizzen of the Aleph Energy consultancy firm, an economist and energy specialist.
Hernán Herrera of the Instituto Argentina Grande asserts that the decline in prices is primarily influenced by reduced consumption and decreased activity in critical sectors, rather than by policy measures. Industrial output decreased by 9.8 percent in the first four months of 2025 relative to the same timeframe in the previous year; construction experienced a decline of 26 percent; and primary public spending saw a reduction of 27 percent. This represents a significant reduction in resources. The economy is contracting – the monetary tightening is having its intended effect. However, he stated to Perfil that no one is experiencing improved living standards or increased productivity, with the exception of a select few sectors.
In the interim, the wholesale price index experienced a decline of 0.3 percent in May, marking the lowest year-on-year change of 22.4 percent since December 2017. The cumulative wholesale inflation rate for the current year is recorded at 7.4 percent. The decline can be attributed primarily to consistent import expenses stemming from a stable official exchange rate. “With an increased variety of goods in the wholesale index’s basket, wholesale inflation is declining at a quicker pace than retail inflation, which continues to be influenced by services expanding at a rate of 2.7 percent per month.” When services consistently increase at a rate surpassing that of goods, a convergence in prices is inevitable – either through goods catching up or through a deflationary trend in services. The LCG consultancy firm remarked, “This dynamic points to an inflationary floor.”
Pablo Goldin from Macroview elucidated that within the 1.5 percent CPI, 35 percent of prices remained stable or close to zero, whereas 45 percent experienced an increase of approximately 2.5 percent. “A segment of the economy is moving in accordance with disinflation.” However, a more substantial segment continues to experience a more rapid increase. “That’s the challenge: some prices are nearing zero, but others are stubbornly rising,” he stated in an interview with Radio Rivadavia. “If fiscal discipline holds, we may eventually reach a low-inflation regime.” However, it is essential not to overlook these enduring elements, particularly in a nation with a profound inflationary history. “As soon as demand picks up, margins get reset,” the LCG report added.
Beyond the implications of a near-zero CPI or a figure beginning with ‘1’ on the October vote, the fundamental inquiry is whether this truly benefits individuals’ financial situations. Analysts indicate that there is scant evidence suggesting that declining prices are enhancing purchasing power, with the exception of a limited number of product categories. Durable goods have exhibited a degree of improvement; however, items associated with mass consumption have not experienced similar progress.
April saw the first year-on-year increase in large supermarket and self-service consumption following 15 consecutive months of decline – albeit a modest 0.1 percent, as reported by Scentia. The first quarter concluded with a 6.5 percent decline relative to early 2024, marking it as one of the most challenging periods attributed to the post-devaluation slump. The recovery is occurring from a significantly depressed starting point.
Roberto Cachanosky, an economist, stated on the Canal E network that the official figures fail to represent the true situation: “The goods basket used in the CPI no longer matches what people actually spend on.” He added, “Rising service costs are squeezing household budgets.” That is the reason consumption remains stagnant. “If services were weighted more heavily, CPI wouldn’t be 1.5 percent.”
An analysis by the Grupo Atenas organisation highlighted that the deceleration in inflation has not translated into wage increases: both general and formal private sector salaries are stagnant at the levels recorded in September 2024, mirroring those of November 2023. “Education, health, and telecoms continue to experience upward trends. Companies pass on price increases, impacting household budgets. “So while the average CPI may fall, the lived experience often doesn’t match the official numbers,” stated Damián Di Pace of the Focus Market consultancy firm.
A recent report from Argentina’s Labour Secretariat indicates that real wages have experienced a decline over the last three months. In April, the average wage registered in the private sector experienced a decline of 1.6 percent when adjusted for inflation. Despite a decline in inflation rates, the erosion of purchasing power persists. Fixed costs are on the rise, while household income is experiencing a decline. “The average inflation rate is not below what middle-class households experience,” stated Di Pace. This observation is particularly pronounced in fixed budget allocations. “If school fees increase by 6.5 percent while your salary only grows by 2.7 percent, and you account for an additional 4.1 percent for telecommunications, it becomes evident that your income is not keeping pace,” he explained.
A report by analysts at Empiria indicates that household disposable income decreased by 1.3 percent in the first quarter relative to the end of 2024, marking its lowest level since August of that year. In March, the average household income within the Buenos Aires metropolitan area experienced a decline of 2.2 percent in real terms, primarily attributable to a monthly inflation increase of 3.7 percent. Fixed costs, however, experienced their first real-terms decline since January 2024, with a 2.3 percent decrease in electricity and gas, and a 2.6 percent reduction in water, thereby alleviating some of the financial pressure.