Where Does Argentina’s Consumer Sentiment Stand Ten Months After Milei’s Election

Argentina continues to be on our radar this month as we observe the effects of President Javier Milei’s policies on consumer sentiment. Recently, President Milei abolished the rental law that imposed strict rent control regulations. This measure is part of his economic shock therapy – for which Milei said the economic situation will get worse before it gets better. 

Consumer sentiment in Argentina began rising with the election of Milei in October 2023. Despite record high monthly price increases right after his election (in December 2023, prices grew 25.5% m/m) consumer sentiment kept rising. The Index of Consumer Sentiment is made up of five separate indexes that pose economic questions about current and future conditions. Looking under the hood, the increase in topline ICS has been mainly driven by future expectations as opposed to current buying conditions.

In fact, the current buying conditions index (where consumers are asked if they think now is a good time or bad time to buy major household items such as refrigerator, stove, television, etc) drops significantly after the election of Milei. On the other hand, the future expectation indexes – those asking questions about the 12 month expectations and 5 year expectations for personal finances and business conditions – picked up, driving the increase in topline consumer sentiment. 

Although the index for current buying conditions deteriorated as inflation shot up in December 2023 and remained high in the subsequent months, we note a gradual improvement as monthly price increases moderated from 25% in December 2023 to around 4% in August 2024. However, in year-over-year terms, inflation is still very high due to base effects. In August 2024, prices across the country were 237% higher than August 2023, lower than the peak rate of 289% in April 2024.

In addition to expectations indexes, there has also been a gradual increase in the personal finances current conditions index. This index poses the question: Would you say that you (and your family living with) are better off or worse off financially than you were a year ago? The index is composed by subtracting the percentage of negative values (saying worse off) from the percentage of positive values (better off) and adding 100. 

Improvement in personal financial conditions began in earnest in April 2024 and stabilized in July 2024, in line with the deceleration of the year-over-year inflation figures.

Rents, inflation and consumer sentiment

For monthly averages, September was the second month in a row that the topline ICS fell in Argentina. However,this deterioration is mostly driven by future expectations instead of current conditions. In fact, current buying conditions have improved last month. On October 10, the National Institute of Statistics and Censuses in Argentina will release the CPI figures for September. Economists forecast price increases to moderate once again to a rate of 3.5% m/m or 209% y/y. As price increases continue to ease, the current buying conditions index will improve.

Rents are an important factor in inflation calculations. As noted in the WSJ article above, the removal of rent controls will increase supply, which will drive down pricing for rents. Rent inflation had reached 250% in the Greater Buenos Aires area in August, we expect to see a drop in prices in official figures, which will also help with current buying conditions index. 

Even if the current buying conditions index improves over the next few months, the trajectory of the topline ICS figure is also dependent on future expectations indexes. Those seem to show that the rosy outlook freshly off the election of Milei has waned.