Argentina’s consumer price index rose by 3.4% month on month in March. This was higher than the 3% forecast.
The March reading exceeded expectations by 0.4 percentage points. The data adds to recent inflation tracking for Argentina.
The higher-than-expected inflation print of 3.4% for March is a significant surprise. It challenges the market’s view that the Central Bank of Argentina (BCRA) could continue its aggressive rate-cutting cycle, which saw the benchmark rate fall to 45% just last month. We must now question the path of monetary policy for the second quarter.
We see immediate pressure on the peso, which has been stable near 1,250 per dollar on the parallel market. Hedging against or speculating on peso weakness through non-deliverable forwards (NDFs) for the coming months now looks attractive. A break above 1,300 in the coming weeks is now a much higher probability given this inflation stickiness.
The market had been pricing in at least another 400 basis points of cuts from the BCRA by July. We should now position for a pause by using interest rate swaps to pay a fixed rate. This protects against the risk of floating rates not falling as previously expected.
This data injects uncertainty, making it a prime environment to buy volatility. Implied volatility on Merval index options and key ADRs has likely been underpriced given the recent calm. We see value in structures like long straddles to profit from a larger-than-expected market move as the government and central bank react.
Looking back, we remember the sharp market reactions during the start of the disinflationary process in 2025. While a 3.4% monthly rate is a vast improvement from the double-digit prints we saw then, it proves the final mile of this fight is the hardest. The market’s sensitivity to these upward surprises remains just as high.
