President of Argentina, Javier Milei. File

Argentina’s monthly inflation rate eased sharply to a single-digit rate in April for the first time in half a year, data released Tuesday showed, a closely watched indicator that bolsters President Javier Milei’s severe austerity program aimed at fixing the country’s troubled economy.

Prices rose at a rate of 8.8% last month, the Argentine government statistics agency reported, down from a monthly rate of 11% in March and well below a peak of 25% last December, when Mr. Milei became president with a mission to combat Argentina’s dizzying inflation, among the highest in the world.

“Inflation is being pulverized,” Manuel Adorni, the presidential spokesperson, posted on social media platform X after the announcement. “Its death certificate is being signed.”

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Although praised by the International Monetary Fund and cheered by market watchers, Mr. Milei’s cost-cutting and deregulation campaign has, at least in the short term, squeezed families whose money has plummeted in value while the cost of nearly everything has skyrocketed. Annual inflation, the statistics agency reported Tuesday, climbed slightly to 289.4%.

“People are in pain,” said 23-year-old Augustin Perez, a supermarket worker in the suburbs of Buenos Aires who said his rent had soared by 90% since Mr. Milei deregulated the real estate market and his electricity bill had nearly tripled since the government slashed subsidies. “They say things are getting better, but how? I don’t understand.”

Mr. Milei’s social media feed in recent weeks has become a stream of good economic news: Argentine bonds posting some of the best gains among emerging markets, officials celebrating its first quarterly surplus since 2008 and the IMF announcing Monday it would release another $800 million loan—a symbolic vote of confidence in Mr. Milei’s overhaul.

“The important thing is to score goals now,” Mr. Milei said at an event Tuesday honoring former President Carlos Menem, a divisive figure whose success driving hyperinflation down to single digits through free-market policies Mr. Milei repeatedly references. “We are beating inflation.”

Shrinking economy

Even so, some experts warn that falling inflation isn’t necessarily an economic victory—rather the symptom of a painful recession. The IMF expects Argentina’s gross domestic product to shrink by 2.8% this year.

“You’ve had a massive collapse in private spending, which explains why consumption has dropped dramatically and why inflation is also falling,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics who studies emerging markets. “People are worse off than they were before. That leads them to spend less.”

Signs of an economic slowdown are everywhere in Buenos Aires—the lines snaking outside discounted groceries, the empty seats in the city’s typically booming restaurants, the growing strikes and protests.

At an open-air market in the capital’s Liniers neighborhood, Lidia Pacheco makes a beeline for the garbage dump. Several times a week, the 45-year-old mother of four rummages through the pungent pile to salvage the tomatoes with the least mold.

“This place saves me,” Pacheco said. Sky-high prices have forced her to stick to worn-out clothes and shoes and change her diet to the point of giving up yerba mate, Argentina’s ubiquitous national drink. “Whatever I earn from selling clothes goes to eating,” she said.

Mr. Milei, a self-proclaimed “anarcho-capitalist” and former TV personality, warned his policies would hurt at first.

“It’s not his fault, it’s the Peronists who ruined the country, and Mr. Milei is trying to do his best,” said Rainer Silva, a Venezuelan taxi driver who fled his own country’s economic collapse for Argentina five years ago.

Argentina’s economy minister and the anti-establishment upstart he faces in a presidential runoff next month began competing Monday to shore up the moderate voters they need.

Economy Minister Sergio Massa earned almost seven points more than chainsaw-wielding economist and freshman lawmaker Javier Milei in Sunday’s vote. Most polls had shown Mr. Massa slightly trailing, as voters had been expected to punish him for triple-digit inflation that has eaten away at purchasing power and boosted poverty.

On November 19, voters will either choose Mr. Massa, despite the economic deterioration that took place on his watch, or place their hopes in a self-described anarcho-capitalist who promises a drastic shake-up of South America’s second-largest economy.

Mr. Milei’s fiery rhetoric and radical proposals — like slashing subsidies that benefit a large swath of the population and replacing the local currency with the dollar — galvanised die-hard supporters, but cost him support among more moderate voters.

Mr. Massa focused his messaging in the latter part of the campaign on how Mr. Milei’s budget-slashing chainsaw would negatively affect citizens already struggling to make ends meet, with a particular focus on how much public transportation prices in Buenos Aires would increase without subsidies, said Mariel Fornoni of the political consulting firm Management and Fit.

That “had a significant impact and evidently instilled more fear than anything else,” Ms. Fornoni said.

Mr. Massa once again showed his Peronist party’s power to mobilise Argentine voters. A political movement named after former President Juan Domingo Perón that has both left- and right-wing factions but broadly believes in social justice and workers’ rights, Peronism has been a dominant force and in this election cycle emerged as the only viable left-leaning option.

Right-wing votes were divided between Mr. Milei, former Security Minister Patricia Bullrich of the main opposition coalition and another candidate, Cordoba province’s Governor Juan Schiaretti. Ms. Bullrich finished third in the field of five candidates, and the runoff will be decided by where her voters ultimately migrate.

She said in her concession speech Sunday night that she wouldn’t congratulate Mr. Massa on his victory because he was part of “Argentina’s worst government,” and that her coalition would never support “the mafias that have destroyed this country.” She stopped short of endorsing Mr. Milei, however.

During the campaign, Mr. Milei harshly criticised Ms. Bullrich as part of the entrenched elite that required purging, but he sought to appeal to her voters in a radio interview Monday, suggesting that they should focus on the bigger picture.

“Everyone who wants to change Argentina, who wants to embrace the ideas of freedom, are welcome,” Mr. Milei said. “It’s not a matter of labels; it’s a matter of who wants to be on this side.”

Asked in a news conference Monday whether he foresees challenges in siphoning support away from Ms. Bullrich, Mr. Massa responded that “leaders aren’t the owners of votes” and that several views espoused by Mr. Milei “have nothing to do with our culture and the values of the average Argentine citizen.”

Mr. Massa also said he would not want his government to be characterized as only Peronist.

“I believe it’s a mistake to suggest that the upcoming phase should be tied solely to Peronism. We are heading toward a government of national unity. I will call upon the best from various political forces, regardless of their origin,” Mr. Massa said.

Mr. Massa had already told voters that he inherited a bad economic situation exacerbated by a devastating drought that decimated exports. He reassured them that the worst was past.

With nearly all ballots counted Monday, Mr. Massa, 51, had 36.7% of the vote and Mr. Milei, 53, had 30%. Ms. Bullrich got 23.8%

In his radio interview, Mr. Milei characterised Mr. Massa’s results as the minister’s “ceiling” and said his showing marked a “floor”.

Mauro Salvatore, a 23-year-old programmer, said outside Milei’s campaign headquarters Sunday night that he is optimistic Mr. Milei will pick up the votes that went to Bullrich in the first round.

“We have a clear possibility. We find ourselves in a situation we knew wouldn’t be easy, but you can see the Argentine people are tired and really want change, independent of whether it will be Milei or Bullrich,” said Mr. Salvatore. “We have a lot of faith that some of Bullrich’s voters can be taken, given it’s understood they have more inclination toward Milei’s ideas than Massa’s.”

Analysts, however, questioned whether those votes would automatically transfer to him. Some of the more progressive elements of Ms. Bullrich’s coalition were already making clear Monday they would not support Mr. Milei, who has raged against the so-called “political caste,” vowed to eliminate half the government ministries and slash public spending.

And some analysts warned a runoff scenario may not be conducive to Mr. Milei’s combative style.

Mr. Milei is “an inexperienced candidate, lacking political expertise, who perhaps may not have the capacity to understand that the current scenario will require him to moderate, build political agreements, and appeal to voters who might ask for changes in his political proposal,” said Lucas Romero, head of Synopsis, a local political consultancy.

Mr. Milei’s casting himself as a culture warrior against the creep of the so-called “socialist agenda” appears to be a headwind, said Benjamin Gedan, director of the Latin America Program at the Washington-based Wilson Center. Mr. Milei has been endorsed by Brazil’s former far-right President Jair Bolsonaro and says he shares a common mission with former U.S. President Donald Trump. Some supporters wear hats that read “Make Argentina Great Again”.

Mr. Gedan described Milei’s opposition to abortion and gun control, among other positions, as “out of sync with Argentine society”.

Sovereign bonds plunged Monday and there was a selloff in Argentine equities as the market predicted that Mr. Massa’s first-round surprise means the government has little incentive to correct any of the economy’s imbalances for now. In the run-up to the vote, Mr. Massa boosted welfare programs and implemented tax cuts that benefited almost all registered workers, going against calls from the International Monetary Fund for austerity and removal of subsidies.

Mr. Massa “was able to build over the last two months through some tax holidays and other giveaways that could be fairly deemed populist,” said Brian Winter, a longtime Argentina expert and vice president of the New York-based Council of the Americas. “It’s going to be really interesting to hear what he says in the next few weeks, because he will need to win over some more moderate voters in order to win.”