November 28, 2014
The illusion is over: January's consumer price index clocks in at 3.7%
At the debut of the new national consumer price index, Kicillof blasts private consultancies
President Cristina Fernández de Kirchner’s administration yesterday unveiled its long-awaited new national urban consumer price index (IPCNu), which reported a 3.7 percent increase in prices in January compared to December.
Members of the audience at the Economy Ministry press conference audibly gasped at the number that was almost four times the rate the government has been releasing almost every month for seven years in its widely discredited price index.
Most experts present were expecting to hear anywhere between 2.5 percent to 3 percent.
In order to come up with the new index, up to 200,000 products will be surveyed every day by 290 people in 13,000 stores nationwide.
Since January 2007, the government systematically underestimated inflation and thus overestimated economic growth. Even close government allies abandoned the official data in recent years.
The old index almost always reported monthly inflation at less than one percent after political appointees changed the methodology used to measure consumer prices at the INDEC.
But the index released yesterday showed increases across multiple sectors of the economy, including health care (5.9 percent), transport (5.4 percent), home supplies (4.3 percent), food and drink (3.3 percent), housing (2.2 percent), and clothing, (0.8 percent).
If the monthly increase were to be extended throughout the year, which would be highly unlikely, inflation this year could total as much as 44 percent inflation.
The new index will be published monthly and will track prices on a basket of 520 goods and services, including food, drinks, clothing, housing, appliances, healthcare, transportation, communication, recreation and education. It will become a reference point for determining values for the basic food basket and total goods basket, which are used to measure poverty and destitution.
The main element of information to build the index was the 2012 national survey of household spending, which explains how and how much Argentines spend nationwide. The old index was built on the 2004 version of the survey, which was considered outdated and because of that it was changed.
“Argentina changed a lot between 2004 and 2012 and because of that a change was needed. It’s an image of a completely different country,” Kicillof said alongside INDEC Director Ana María Edwin and INDEC Technical Director Norberto Itzcovich.
Unlike the old index, which measured prices only in the Greater Buenos Aires, the new index aims to cover 200,000 prices across the nation in six main regions: Patagonia, North East, North West, Cuyo, Metropolitan Area and Pampeana. A basket of products was created for each region based on its consumption characteristics.
“This is the first time we have in Argentina a national consumer index for the whole urban population. It’s a quantitative and qualitative change compared to the previous index. It was imperative to change Argentina’s price index,” Kicillof said. “The index was built according to international standards and was shared with numerous agencies.”
The new index was designed in consultation with the International Monetary Fund, which shamed the government last year by refusing to include its economic data in global reports, as well as with several countries and international organizations.
“We held meetings with officials of the statistics department of the IMF as well as with the authorities of the Fund for the Western Hemisphere,” Edwin said.
In February 2013 the IMF sanctioned Argentina with a “motion of censure” due to the lack of credibility on inflation and economic growth data. Nevertheless, the government’s relationship with the Fund began to change after the IMF board recognized the work done so far to improve its price index.
Reasons behind the increase
Kicillof explained January’s high inflation was directly related to the steep devaluation of the peso and to the “psychosis of businesspeople” over the illegal dollar exchange rate, while he harshly criticized private consultancies that measure their own price consumer index.
“They wanted to make us believe that changes in the official and illegal dollar exchange rates had an impact on all products but that’s completely false. It was speculative action to obtain extraordinary profits,” Kicillof said. “Not everything is a valid excuse to increase prices.”
The Economy Minister listed inflation estimates of private consultancies and showed the variations among all the figures, giving details over the methodology used by them which he considered is not rigorous.”
“The price index in Argentina had become an issue surrounded by controversy and discussions,” Kicillof said. “Private agencies prepare suspicious reports without saying what methodology they use.”
A large number was expected for January’s inflation considering the 66 percent increase in public transportation in the metropolitan area and increases in various goods such as fuels, electronics, food and domestic appliances after the steep peso devaluation in January.
January’s inflation signifies a jump in comparison with previous month’s inflation figures since the old index used to report almost always a monthly inflation rate of less than one percent.
Government critics are bound to point to the 4.6 percent inflation reported by the Congress-drafted index, which takes an average of private consultancies that use unknown methodologies, as a sign that the index is still not telling the full truth. For its part, Buenos Aires City’s own index estimated 4.8 percent inflation last month.
Main characteristics of the new national consumer price index
-Prices will be measured nationwide in 40 cities of 5,000 people or more. The country was divided in six regions (Patagonia, North East, North West, Cuyo, Metropolitan Area and Pampeana), all of which have their own food basket.
-The index will be published monthly and will track prices on a basket of 520 goods and services.
-The INDEC statistics bureau assigned a team of 290 people to work on the index. Officials of provincial statistics bureaus will also collaborate with the INDEC.
-The index was built with information obtained in the 2012 national survey of household spending, which explains how and how much Argentines spend nationwide. The old index was based on the 2004 version of the survey.
-The index was designed in consultation with the International Monetary Fund, which had sanctioned Argentina with a “motion of censure” due to the lack of credibility of its data, as well as with numerous countries such as Spain, Mexico and Italy and other international agencies such as the World Bank and the International Labour Organization.
January price variations
Food and drinks: 3.3 percent
Clothes: 0.8 percent
Housing and basic services: 3.3 percent
House maintenance and equipment: 4.3 percent
Medical care and health expenses: 5.9 percent
Transport and communications: 5.4 percent
Amusement: 4.8 percent
Education: 1.6 percent
Other goods and services: 3.5 percent