Argentina: Argentina launches new inflation index
March 18, 2014
According to the new inflation index elaborated by the National Statistics Institute (INDEC), consumer prices increased 3.4% over the previous month in February. The reading came in below the 3.7% increase recorded in January and undershot market expectations of a 4.2% rise. The monthly increase was driven by higher prices in all the categories covered by the index, with notable increases in the prices for healthcare and household items. The overall increase reflects the continued impact of a weaker peso, as many businesses are marking up prices on import goods. INDEC did not publish figures for annual inflation. The new inflation index measures prices in the whole country, whereas the previous readings were based solely on Buenos Aires and the surrounding metropolitan area. The new index was unveiled last month in the hope of restoring confidence in official inflation data and in response to the timeline the International Monetary Fund (IMF) set in December 2013 that required Argentina to release new GDP and inflation figures by March 2014. The previous inflation index was viewed with suspicion both within the country and abroad for underreporting inflation figures, which had prompted the IMF to censure Argentina for not supplying accurate economic data. The new inflation figures, however, have not completely dispelled suspicions of underreporting, as the price increases reported by INDEC are below independent estimates made by local private analysts. According to the so-called “Congress Index” (IPC-Congreso), which is an alternative inflation gauge based on independent estimates collected by opposition lawmakers, consumer prices increased 4.3% in February over the previous month (January: +4.6% month-on-month) and annual inflation rose from 30.8% in January to 34.9% in February, the highest level since June 2011 when independent inflation records began. Within this setting, the government is preparing for tough wage negotiations with labor unions who are demanding salary increases that are in line with the higher independent estimates. In fact, Argentina's teachers have been on strike since the beginning of March-thus delaying the beginning of the school year-as they rejected a proposed 31.0% wage hike. Teachers' unions are demanding increases of between 42.0% and 66.0%. On the back of the new inflation estimates, panelists revised up their projections for official inflation. LatinFocus Consensus Forecast panelists see official inflation at 23.1% by the end of 2014, which is up 5.1 percentage points from last month's estimate. Panelists estimate that official inflation will slow to 22.1% by the end of 2015. Forecasts for the non-official inflation gauge point to even higher figures. Panelists surveyed by LatinFocus expect non-official consumer prices to increase to 35.3% in 2014, which is up 0.9 percentage points over last month's forecast. Analysts see non-official inflation slowing to 29.4% in 2015.