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Argentine Peso, Brazilian Real now in undervaluation

Staff writer |
The latest set of World Price Index (WPI) data indicates that the Argentine Peso is now 1.5% undervalued against the US dollar in Purchasing Power Parity (PPP) terms.

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The methodology behind the WPI involves collecting price data for a representative basket of goods across different countries. This allows the measurement of the real purchasing value of national currencies across the world in terms of their relative purchasing power against a comparable basket of goods in the US.

The data for January shows a sharp realignment of the Argentinian currency from an overvaluation of 36.6% in December to its position close to parity in January.

Last month on the foreign exchange markets the official rate was one $bought 9.68 Pesos while this month a significant depreciation of Argentine’s currency by 40.1% meant that one $could be exchanged for 13.62 Pesos.

In contrast, the WPI rate for December was one $to 13.21 Pesos while the PPP rate for January was one $to 13.41 Pesos, a fall of only 1.4%.

In January the undervaluation of the Brazilian Real increased to 16.6% against the $from 12.2% the month before. This month the currency’s foreign exchange value was R4.10 to a $compared with a WPI rate of one $to R3.35.

Last month one $bought R3.83 in the currency markets, while the WPI rate was one $to R3.37.

There has been a significant change in the Real-Dollar exchange rate over the last two years as the Brazilian economy and confidence in its political leadership have nosedived. In January 2013, one $bought R2.02, half the current amount, which against a WPI rate of R2.75 at the same time produced an overvaluation of 35% against the Dollar.

Since then the Brazilian currency has steadily fallen on international exchanges hitting close to parity with the dollar in PPP terms by March of last year and moving further into undervaluation territory since then.


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