Argentina’s Consumer Price Index rose by 2.9% month on month in January. This was up from 2.8% in the previous month.
The uptick in monthly inflation to 2.9% for January is a signal that pricing pressures are not fading as quickly as anticipated. This challenges the narrative that the central bank could begin an easing cycle in the second quarter. We should now adjust our view to expect a more hawkish stance from policymakers in the immediate term.
Inflation Outlook And Policy Implications
This persistent inflation increases uncertainty, which means we should consider buying volatility. Implied volatility on Merval index options has already climbed from 32% to 35% in early February trading, indicating that the market is beginning to price in larger potential price swings. Securing exposure to rising volatility through straddles or simple long calls and puts is a prudent move.
The Argentine peso will face renewed pressure from this inflation data. We saw how quickly the currency could move during the stabilization attempts back in 2024, and this report could reawaken devaluation fears. Therefore, we should look at non-deliverable forwards (NDFs) to hedge against or speculate on a weaker peso against the dollar in the coming one-to-three-month tenors.
Interest rate expectations must be revised, as the market was pricing in a potential 200 basis point cut by mid-year. This now seems highly unlikely, with the central bank’s policy rate likely to hold at its current 40%. Trading interest rate swaps to pay a fixed rate and receive a floating rate is now a more compelling strategy.
For equities, this environment is a headwind, as higher borrowing costs can impact corporate profits. The Merval index rallied over 20% in the final quarter of 2025 on hopes of rate cuts and disinflation. We should now look to purchase protective put options on the ARGT ETF or short Merval futures to guard against a potential market correction.
