The Argentine economy is settling in: dollar decline, inflation under control, and import surge

As financial stabilization consolidates, the Argentine economy is beginning to show firm signs of readjustment. With inflation falling more rapidly than expected and a dollar holding steady, Javier Milei 's economic team is on track to fulfill one of its main promises: to restore order to macroeconomic variables.

According to private estimates, inflation in May could fall below 2%, driven by the fall in the dollar and the slowdown in food and beverage price increases. The consulting firm Econviews, for example, reported a 0% increase in this category during the first week of the month.

The appreciation of the official exchange rate has become one of the key factors in the current scenario. For exporting companies and platforms like Mercado Libre, which operate with results in dollars, this meant an advantage: a nominal profit in pesos that is now worth more in hard currency. On Wall Street, the company set a record after publishing its quarterly balance sheet, supported by this exchange rate effect.

But the outlook is not uniform. Other companies face increased competition from the rise in imports, which are benefiting from the stable exchange rate. This "import wave" will deepen in the second half of the year, with the arrival of products purchased by Argentine businesspeople at international fairs such as the Canton Exposition in China.

Luis "Toto" Caputo was blunt before business leaders this week: the government has no intention of endorsing the strong dollar as in the past. The fiscal surplus, along with the gradual return of market confidence, allows for a more appreciated exchange rate without compromising competitiveness. Stability also reflects the strong inflow of foreign currency from the agricultural sector, which boosts the dollar supply without intervention from the Central Bank.

This situation favors not only price controls but also the possibility of reactivating consumer credit. Credit card installments and personal loans are beginning to play a key role in sectors where income has yet to recover at the pace of the general economy.

Activity is growing at a 5% year-over-year pace, according to official data, but with significant imbalances. Mining, energy, and the financial sectors are showing clear signs of expansion. However, industry and construction are still moving slowly. Mass consumption remains stagnant, and the purchasing power of wages is struggling to grow.

The government is banking on the sustained decline in inflation driving a more even recovery. The Monthly Estimator of Economic Activity (EMAE) is already at its highest level since November 2017, even approaching the last peak recorded in 2011, during Cristina Kirchner 's second term. However, the difference is that now there are no restrictions or capital controls, and efforts are being made to strengthen the market and open access to international credit.

Although the domestic outlook is improving, the international situation remains volatile. The fall in the price of commodities such as soybeans could affect foreign currency inflows. Furthermore, following the recent agreement with the IMF that reduced the Central Bank's reserves, the priority now is to accelerate the reduction of country risk and achieve sustained market access.

Caputo was cautious: he clarified that achieving this goal is unlikely before the October legislative elections. Therefore, all the chips are on consolidating stability and keeping inflation low as the central focus of the program.

Greater openness to the world also brings challenges. Imports will grow strongly in the second half of the year, impacting both the consumer market and production inputs. Clothing, grocery stores, toys, and construction materials will be flooded with products from abroad. For many local companies, this will entail a change in commercial strategy: they will have to lower prices or innovate to avoid losing ground.

The government is analyzing new measures to encourage the use of dollars in the economy. The goal is to mobilize the idle savings that many Argentines keep outside the financial system. However, some analysts warn that, if poorly communicated, this type of measure could be interpreted as a sign of urgency on the part of the executive branch.