MercoPress. South Atlantic News Agency

Argentine economy forecasted to expand 8% in 2011 with inflation ranging 25%

Domestic demand and commodities prices boosting South America’s second largest economy

Argentina’s 2011 economic growth forecast was raised to 8% from 5% by Nomura Securities International based on a strong surge from domestic demand and rising commodity prices. Government primary spending is expected to continue since 2011 is electoral year.

“The strong consumption boom is very apparent in Argentina,” said Nomura economist Boris Segura in a report released Friday. “This situation is aided by loose monetary conditions, which keep interest rates negative in real terms and have prompted a rapid increase in consumer credit”.

Argentina’s economy expanded 9.2% in 2010, the most in five years. Still, Segura lowered his 2012 growth forecast to 4% from 4.7%, saying that recent government moves, such as exerting more control over company boards, may dampen private investment.

Even as Argentina’s economy expands for a ninth consecutive year, according to official figures, consumer prices accelerated 26.6% last year, according to Buenos Aires-based research company Ecolatina. That estimate is more than double the 10.9% inflation reported by Indec, the national statistics agency.

“Given negative real interest rates, a stable dollar and the lack of savings alternatives, consumers are also turning to durable goods as the ultimate inflation hedge” Segura wrote in the report. “Private consumption is also being further underpinned by strong government expenditure on pensions and other transfers”.

Sales of such goods as home appliances, toys and clothing soared 39.5% in December from a year earlier, the biggest increase for that month since at least 1998. Auto sales last year gained 43.3% in unit terms, the most since 2004.

Segura said he expects the government’s primary spending to accelerate in coming months after expanding 34% in February from a year earlier, “adding more stimuli to the economy”.

Contrary to other South American countries the Argentine peso last year fell 4.5% against the US dollar, the most among the region’s major currencies.

In related news official inflation increased to 0.8% in March, the government Statistics Office, Indec reported Friday. However private analysts said the real rate was about twice that.

Argentina's official inflation data is widely discredited as too low to reflect true price growth in the economy. Independent estimates showed consumer prices rose between 1.5% and 2.5% last month.

Annual inflation is estimated privately at around 25%, one of the world's highest rates. Twelve-month inflation through March was 9.7%, compared with 10% in February, the Indec statistics agency said.

Indec said the biggest consumer price gains in March were in education and apparel, which increased 4.8% and 2.3%, respectively. Prices for food and beverages, the most heavily weighted item, rose 0.6%.