Saturday, January 12, 2008

Argentina's Inflation Enigma

Well, make of it what you will is, I suppose, all you can say. Argentina released the latest data on the consumer prices index earlier this week, and according to the controversial Nacional Statistics and Census Office, Indec, retail price inflation was running at 0.9% in December, and at a year on year level for December of 8.5%.

The CPI for Buenos Aires City and the metropolitan area shows that prices in 2007 rose less than in 2006 (9.8%), thus according to official statements inflation in Argentina is receding. But this is not a view many people outside the government are prepared to accept. The 8.5% figure is a long way from private economists estimates that inflation in 2007 was somewhere in the range between 17% (the optimists) and 22% (the more pessimistic).

Indec has been in the eye of the storm for months now, with the Kirchner administration sacking several technical staff responsible for the index for not “correctly” interpreting cost of living data, replacing them by more compliant personnel, who were less statistical experts and rather more “telephone extensions”, as the Buenos Aires press put it.

The Indec conflict has been ongoing with labor stoppages, official interventions, mutual threats and at the end of the day a general discrediting of the Argentine official statistics office.

One of the principal concerns of the Kirchner/Fernandez administration has been and is concerned that double inflation will have a significant impact on sovereign bonds liabilities, given their floating interest rates adjusted by economic growth and inflation.

To add to the scandal the regional Indec office in Mendoza province, which many consider apparently was doing a reasonable job, systematically calculated inflation as being higher than the official index, elaborated in the main office in Buenos Aires. But one of the first moves of the economic team of the Fernandez administration on taking office was to change all the staff at the Mendoza Indec office, and of course the inflation reading is now well aligned with the Buenos Aires data.

Make what you want of it, but the December index shows that compared to November, health and medical attention jumped 3.5%; leisure, 2.4%; other goods and services, 1.9%; clothing, 0.9%; housing and basic services, 0.8%; transport and communications, 0.7%; food and beverage, 0.4% and education, 0.2%. On the other hand home maintenance and equipment actually decreased 1.5%.

Wholesale prices in December increased 0.5% over November totaling 14.4% in the last twelve months and the construction index was up 0.7% in December.

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