Argentina: Annual inflation reaches eleven-month high amid largest month-on-month increase in nearly six years
January 17, 2014
According to official figures, consumer prices for the Greater Buenos Aires area added 1.4% in December over the previous month. December's increase was a step up from the 0.9% rise recorded in November and marked the highest monthly increase since March 2005. Higher prices for recreation and healthcare were the main drivers behind the increase in prices. Annual headline inflation jumped from 10.5% in November to 11.0% in December, which was the highest level in eleven months. LatinFocus Consensus Forecast panelists see official inflation at 13.1% by the end of 2014, which is up 0.6 percentage points from last month's estimate. Panelists estimate that official inflation will rise to 13.8% by the end of 2015.
Against this backdrop, the government implemented a price freeze on almost 200 items at all of the country's major retailers on 6 January. Argentinean authorities hope to ease inflation ahead of the annual wage negotiations set for March and April of this year. Wage negotiations between trade unions and the government are going to be tough. This was made apparent by the precedent the provincial police forces set when they went on strike across the country in December demanding higher salaries. They only agreed to return to the streets to fight the looting that had broken out after local governments raised - and, in at least one province, doubled - their minimum wages.
Union leaders are expected to request wage hikes of around 30.0% based on non-official inflation statistics. Both in the country and abroad, official inflation data published by the National Statistics Institute (INDEC) have been viewed with suspicion since 2008 when a controversial methodological change was implemented. The issues resulted in Argentina being the first country ever to be censured by the International Monetary Fund (IMF) for not supplying accurate economic data. The resulting procedure could force Argentina's government into "compulsory withdrawal" from the IMF.
A group of opposition lawmakers began collecting independent inflation estimates in 2011 in order to develop an alternative monthly inflation gauge, which is referred to as the "Congress Index" (IPC-Congreso). According to this index, consumer prices increased 3.4% in December over the previous month (November: +2.4% month-on-month) and annual inflation rose from 26.8% in November to 28.4% in December, the highest level since independent inflation records began. Independent analysts surveyed by LatinFocus expect consumer prices to increase to 29.4% in 2014, which is up 0.6 percentage points over last month's forecast. Analysts see inflation rising to 27.6% in 2015.
Author: Armando Ciccarelli, Head of Data Solutions