Believe it, or not: Argentina unveils new inflation index aimed at stabilizing economy


BUENOS AIRES, Argentina – Believe it, or not? That’s the question of the day in Argentina, where the credibility of a new consumer price index unveiled Thursday is key to containing inflation and attracting investment from a world that has lost confidence in the government’s numbers.

The new index’s first monthly report said consumer prices rose 3.7 per cent in January compared to the month before. That’s 44 per cent on an annual basis, and roughly four times the rate Argentina reported every month for the previous seven years.

Since January 2007, the government systematically underestimated inflation and thus overestimated economic growth, critics said. Even close government allies abandoned the official data, demanding 2014 pay raises of more than 30 per cent to keep up with inflation officially estimated at just 10 per cent a year.

The new index was designed in consultation with the International Monetary Fund, which shamed Argentina last year by refusing to include government economic data in its reports.

Argentines also had lost faith, feeding inflation and capital flight by trading their pesos for dollars as fast as they can. Last month’s sudden 20 per cent currency devaluation also sent inflationary shocks through the entire supply chain, making it difficult for businesses and customers to know what a fair price is anymore.

“The worst thing the government did was intervene in the statistics institute. It’s like breaking a thermometer; you never know if you have a fever. Now they’re putting out a new index. It will have a cloud of doubts over its validity,” university professor Elida Repetto, 53, said as she shopped for meat.

By recognizing more of the true costs of living in Argentina, Thursday’s first report was a good start toward stabilizing the economy, said Matias Carugati, chief economist at the Management & Fit consultancy in Buenos Aires.

“This is the government’s silver bullet to begin to take a more rational path and combat this evil,” Carugati told The Associated Press.

The old index almost always reported monthly inflation at less than 1 per cent after political appointees changed the methodology of the National Institute of Statistics and Census.

Since then, actual prices rose somewhere between 70 and 140 per cent higher than the government acknowledged, said Alberto Ramos, an economist with Goldman Sachs.

Private economists responded to the lack of information by making their own estimates, which were combined and reported by minority lawmakers in Congress. Their latest guess was 4.6 per cent for January, one of the highest inflation rates in the world.

Argentina has seen dangerous protests in recent months as its unions prepare for annual negotiations over pay hikes. Uprisings by provincial police officers provoked deadly looting in December before governors, complaining of guns at their heads, agreed to budget-busting increases. Street demonstrations over inflation routinely complicate life in the capital.

With annual salary talks beginning for nearly 1,000 sectors of the economy, having reliable data “would really organize the discussion and tamp down inflationary expectations,” said economist Dante Sica, who directs the consultancy in Buenos Aires.

The new index will track prices on a basket of 520 goods and services, including food, drinks, clothing, housing, appliances, health care, transportation, communication, recreation and education. Unlike the old one, which measured prices in metropolitan Buenos Aires, the new index aims to cover 200,000 prices across the nation.

The changes will be useless if the data comes from price-controlled products sold at places few consumers have access to, Sica warned.

Economy Minister Axel Kicillof said the new methodology would quickly be made public, but many were skeptical.

“Will it be scientific enough to appease the concerns from the IMF?” asked Alberto Bernal, head of research at BullTick Capital Markets in Miami.

“What the world wants to see is some certainty of how prices are measured,” Bernal told the AP. “The whole point is that index needs to be credible. If nobody knows what the hell is being calculated it will be the stupidest thing ever. All the back and forth with IMF would be lost.”

Persuading the IMF to accept its economic data is an essential step toward resolving Argentina’s unpaid debts, including about $10 billion owed to the Paris Club of lending nations, which includes the United States.

Fernandez blamed market forces for betting that an economic collapse would blow away her government. Such forces have beaten Argentina before, she said: “They have blown away jobs, blown away illusions, blown away hope, blown away businesses and blown away the savings of the Argentines, which they kept for themselves.”

“I’m not going to be blown away, because I’m not a witch,” she joked.


Associated Press Writers Michael Warren in Buenos Aires and Luis Andres Henao in Santiago, Chile, contributed to this report.

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