MercoPress. South Atlantic News Agency

Argentina's May inflation 0.5%, but consumers doubt

Argentina's Consumer Price Index rose 0.5% last May, the lowest in three months and below the same month a year ago, totalling 4.4% in the first five months of 2006. Furthermore food and beverage, two essential components of the Basic Food Basket actually contracted 0.3% reported the Statistics and Census Office.

The results were influenced by a 0.6% seasonal produce retraction, while self regulated prices increased 0.2% and the rest of items rose 0.7%.

This means that the Argentine Basic Food Basket, which defines the poverty line, now stands at 391.07 pesos equivalent approximately to 128 US dollars said the Statistics and Census Office. Last April the basic basket contracted 0.7% so this means that the basic food basket five months inflation is 1.6%, "well below the 4.4% index".

Government figures show that in the first five months of the year, Clothing increased 9.3%; Education 12.1%; Housing and basic services 5.1%. However tourism and food actually dropped 0.4 and 0.3%.

Regarding food, the item meat during May actually dropped 2.4% with an accumulated five months increase of 0.5%, with two of the most popular cuts, in beef eating Argentina, recording the main drops in May. However, vegetables since last December have increased 12.7% with bread, cereals and pasta up 4.3%. Dairy produce remained almost unchanged.

According to the Statistics and Census Office the 0.5% increase is "in line" with the government's inflation target for this year which is between 8 and 12%, and deceleration should accentuate in the coming months as "indicated by the whole prices index". Wholesale prices in May rose 0.3% totalling 4.1% in the first five months of the year.

However government optimism is not shared by all economists, some of whom argue that food and leisure were the only items to contract while the rest are increasing, even in those areas where the government has reached a temporary freeze agreement with suppliers such as Clothing, Home equipment and Private Schools.

"Leaving aside seasonal food prices the effect of the latest salary agreements is beginning to be felt in several private services such as education, health and housing, where the recent pay rise for janitors is having a significant impact", argues economist Camilo Tiscornia.

José Luis Espert points out that the self regulated price system is not working. "The administration's arm twisting policy has only managed to reduce inflation 0.7% compared to the same period last year, which can only be described as a failure" said Espert adding that the slight moderation in inflation this year can be explained by lesser government spending and more moderate salary agreements.

Roberto Dvoskin from the University of Saint Andrew says that "controls or price regulation only help to counter fever but not to combat an infection. Although the current policy has helped contain expectations, in the long run a boost in investment becomes essential".

Argentine consumer associations are also critical of the latest figures released by the Statistics and Census Office.

"The May percentage is really surprising, you only need to visit a supermarket to verify what I'm saying" said Susana Andrada from the Consumer Education Center in Buenos Aires.

Ms Andrada is also demanding the government release the list of 800 items with which it elaborates the consumer prices index, "because our index for May shows a different picture: overall prices rose 0.8% and the basic cheaper items 4.5%".