The Government has decided to start allocating subsidies for imported gas to allow households to use it without immediate cost increases. However, Minister of Economy, Luis Caputo, will need to make a decision in the next 10 days about freezing electricity and gas prices for the winter months. Failure to extend the freeze could result in significant rate increases and a potential 2-point increase in inflation, according to calculations by EcoGo consultancy firm.
In addition to deciding on electricity and gas prices, the Economy is evaluating whether water rates should be raised in June and considering an increase in fuel taxes to boost tax collection by up to 7%. These adjustments depend on various factors, including potential budget cuts, alternative revenue sources, reducing inflation, and gauging public support for President Javier Milei.
While the monthly indexation of rates for several companies will not impact the government’s budget directly, the freeze does affect wholesale prices for energy, water, and transport. The government has not yet determined its course of action for June but has already incurred substantial costs. Despite initial projections to decrease energy subsidies by 2024, current circumstances have led to a reevaluation of these plans.
The decision to start subsidizing Liquefied Natural Gas (LNG) aims to stabilize energy prices and prevent accounting losses for distributors. However, extending the tariff freeze could mean households pay the same or less for energy than when the current government took office. The delay in reformulating the Basic Energy Basket subsidy system has contributed to a significant inflationary effect.
EcoGo consultancy estimates that the delay in rate increases has resulted in suppressed inflation, particularly in the transportation and energy sectors. The government is facing complex decisions regarding energy subsidies, price freezes, and revenue generation to ensure economic stability.
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