MercoPress. South Atlantic News Agency

Argentina returns to deflation.

Following sixteen months of inflation triggered last January 2002, when the Argentine currency was freely floated mainly against the US dollar, retail prices in Argentina have returned to practically zero or even negative.

According to Economy Ministry sources published in La Nación, inflation in May "could be slightly below zero". Accumulated inflation in the first four months of 2003 stands at 2,5%.

However the same sources were quick to point out that May's retail price index was "not necessarily worrying", but rather an "isolated event".

"This is consequence of the convergence of wholesale and retail prices that must not be confused with deflation caused by recession".

Public opinion in Argentina that experienced four long years of recession beginning 1998 closely links the phenomena to deflationary prices. In 1991 deflation was 1,9%; in 2000, 0,7% and in 2001, 1,5%. However in 2002 inflation returned with a bang reaching 41%.

Non government economists argue that the current low inflation in Argentina is a consequence of the appreciation of the peso that now stands at 2,85 to the US dollar after having reached 3,60 in 2002.

"If the Central Bank decides to stimulate activity with some inflationary thrust to liquate interest rates and budgetary commitments, it could be the starting point for inflation again", pointed out Guillermo Mondino a former member of the Ministry of Economy.