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Official (unconvincing) Argentine July inflation, 0.5%

Wednesday, August 8th 2007 - 21:00 UTC
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Fears that the Argentine government appears to be intentionally underreporting inflation in an election year emerged again this week when the scandal plagued Statistics and Census Institute (INDEC), under judicial investigation, announced 0.5% July inflation.

This follows a poll last week of 14 Argentine and international analysts who anticipated a median 0.7% forecast for July, with estimates ranging from 0.5% to 0.8%. Analysts and economists in Argentina and abroad have repeatedly questioned recent inflation data reported by the statistics agency, saying the government appears to be intentionally underreporting inflation. In January, the government replaced officials in the prices unit of the statistics bureau and has also implemented changes to price samples. The government has repeatedly denied any tinkering with data. "Nothing surprises us since the INDEC office made methodological changes," said Fausto Spotorno, an economist at Orlando Ferreres y Asociados. "We were expecting inflation would be a little higher, at least 0.7%" "You can see that the index is being manipulated â€" it is not real," said Rodolfo Rossi, an economic analyst and former Central Bank president. "Surely it must have some basis, but this is not the index that people are suffering under". The consumer price index rose 0.4% in June and 0.6% in July 2006. Prices for education rose 2.2% in July, followed by a 1.1% rise in transportation and communication costs, and an identical climb in prices for home furnishings and supplies. In a report published ahead of the data's official release, Deutsche Bank said: "Despite the fact that every indicator points to high inflation, the official CPI reading keeps surprising us on the downside". The CPI rose 4.4% in the first seven months of the year and 12-month inflation through July was 8.6%. The Kirchner administration earlier this year forecasted that inflation would be below one digit for 2007, however in the private sector estimates range between 15 and 20%. Actually the wholesale prices index showed a 2.1% increase in July accumulating 9.5% so far this year, double the consumer price index. Similarly with the construction prices index which surged 2.8% in July and 14.4% in the first seven months. And there's another side to the inflation index about which presidential candidate Cristina Fernandez de Kirchner candidly spoke about in a recent meeting with Spanish businessmen in Madrid. "Inflation is in the budget's target range but I would also like to say that every time the indexes controversy emerges we must recall that approximately 42% of Argentina's sovereign debt is tied to the CER index, which includes inflation", she emphasized, This means that "an extra plus or minus inflation percentage point means good of bad business for bond holders" and she added "we are talking of millions of dollars". But presidential candidate Cristina Kirchner admitted that inflation in Argentina has deep roots and "if there's an issue that has this administration, and the next, completely dedicated is reining in inflation". "We know we're alcoholics therefore we can't afford not even one drink, we must be definitively abstemious" she insisted. On Tuesday the Central Bank released the commodities (oil and cereals mainly) index on which it reports regularly since 1996. The latest report shows the index increased 4.7% over June and 25.4% compared to a year ago. This is good news for Argentina, which is a net exporter of commodities, for the Argentine government that collects a 30% levy on all commodity exports but not encouraging for the consumer index given its direct impact on food prices.

Categories: Economy, Argentina.

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