Argentina’s monthly inflation has dropped below 2% for the first time in five years, a milestone victory for President Javier Milei in his campaign to tame the country’s long-standing inflation crisis.
According to official data released on Thursday by INDEC, Argentina’s national statistics agency, consumer prices rose just 1.5% in May, down from 2.8% in April and far below the staggering 25.5% recorded in December 2023, when Milei assumed office. Despite the slowdown, annual inflation remains at 43.5%, still among the highest globally.
The news was greeted with triumph by Milei’s government. “We have the best president in the world,” wrote Economy Minister Luis Caputo on X, posting alongside the inflation data.
Milei’s Gamble Pays Off
The sharp decline in monthly inflation comes as a political and economic vindication for Milei, whose radical libertarian platform has included sweeping austerity measures, deregulation, and the removal of currency controls. It also provides a potential springboard for his La Libertad Avanza party ahead of October’s midterm elections, where inflation control remains a central issue for voters battered by years of economic turbulence.
Analysts had expected a surge in inflation in April after Milei scrapped the crawling peg exchange rate and floated the peso as part of a $20 billion loan deal with the IMF. The fixed exchange rate had previously helped anchor prices but prevented the central bank from accumulating much-needed foreign reserves.
Instead, inflation slowed, surprising economists. “The government managed to keep the devaluation and pass-through to inflation to a minimum,” said Ramiro Blazquez Giomi, strategist for Latin America and the Caribbean at StoneX.
A Balancing Act on Reserves and Growth
While inflation has been brought under control for now, economic growth remains sluggish, and Argentina still faces significant challenges in stabilizing its currency reserves.
The International Monetary Fund has postponed its June 13 target for Argentina to add $4.5 billion in reserves to mid-July, as the Milei administration has refused to return to the traditional method of printing pesos to buy dollars — a practice blamed for past inflation spikes.
Instead, Milei has relied on other strategies:
- A temporary tax break for agricultural exporters to attract dollars,
- A $2 billion repurchase agreement with international banks, and
- Use of fiscal surpluses to purchase dollars.
Last month, Argentina also raised $1 billion through a bond auction targeting international investors.
Still, concerns linger. The IMF has warned about Milei’s continued interventions in the peso futures market, a move meant to stabilize the currency but one that technically violates terms of the IMF deal unless done in “exceptional circumstances.”
Political and Economic Headwinds Ahead
While the peso has strengthened due to Milei’s policies, analysts caution that the currency could come under pressure as the midterm election season heats up. The stronger peso has also started to erode the competitiveness of Argentina’s export sectors, raising fears of slower economic activity.
“Consumer spending in some areas is still at recession levels,” said Blazquez Giomi. “It is possible that weaker activity starts weighing on certain groups of voters, instead of inflation.”
The IMF forecasts Argentina’s economy will grow 5.5% in 2025, a strong rebound from last year’s contraction, but signs of stagnation are emerging. Productivity and investment remain weak, and investors remain cautious amid unresolved questions about the sustainability of Milei’s monetary policy and his ability to navigate a politically fraught path to economic reform.
