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Tuesday, March 18, 2014

INDEC’s February inflation clocks in at 3.4%

Economy Minister Axel Kicillof unveils February’s official inflation.
By Francisco Aldaya
for the Herald

Deceleration seen as encouraging for further slow-down forecast for March

The government unveiled its official inflation rate for February yesterday, reporting a generalized increase in prices of 3.4 percent, representing a slight deceleration from January at a time when annual wage negotiations are heating up.

The INDEC national statistics bureau reported that the categories of products that saw the largest increases included food and health care, which surged four and six percent, respectively, despite the government-sponsored Price Watch scheme to roll back prices for a range of products and subject them to quarterly review.

The category of “medicinal products” went up a whopping 12.4 percent while meats rose 5.8 percent, fruits 5.4 percent, oils and fats 5.9 percent and drinks, 2.8 percent.

The deceleration of inflation is expected to increase even further this month, with some estimating the INDEC’s renovated consumer-price index could clock in at two percent.

In the first two months of the year there were “many distortions,” Economy Minister Axel Kicillof said yesterday.

Much of the increase in prices was due to the sharp devaluation in January, Kicillof said.

“The government reacted quickly, as did the people through the Price Watch programme,” Kicillof said, noting that led “productive sectors and the commercial chain to transfer the dollar’s variation onto prices mechanically, without economic justification.”

Yesterday’s report was the second edition of the IPCNu, as the national CPI is formally known, which is the result of a year-long effort to reform the methodology behind INDEC’s inflation calculation after the International Monetary Fund censured the country over unreliable and distorted data. It surveys prices at the national level, replacing its previous approach, which only extended to Greater Buenos Aires.

According to INDEC, the methodology involves surveying “230,000 prices at more than 13,000 stores,” but criticism remains about it lacking transparency in not specifying which specific brands are used to write up the index.

At first glance, the category listed as “Education” by Indec was seemingly sheltered from market fluctuations last month, using only 1.5 percent as a whole, but the scope of the Price Watch scheme also came up short when looking at the 4.5 and 8.3 percent hikes felt in “books for studies” and “supplies.”

Transport, which includes cab fares, for instance, rose 4.9 percent, while the “car acquisitions” category saw an increase of 9.6 percent.

Buying new clothes only set consumers back an average 1.3 percent more.

As expected

Several private consultancies and economists had forecast inflation higher than January’s 3.7 percent due to the lingering effects of a sudden 23-percent devaluation in January, but Central Bank Governor Juan Carlos Fábrega appears to have at least contributed slightly to bringing some price increases under control through aggressive monetary policies including opening up limited dollars for savings, reducing the gap between the illicit and formal exchange rates and raising interest rates to encourage fixed-term deposits in pesos while reducing the amount of pesos in circulation.

Deceleration ahead

Asked if a lower figure than January’s would come as a relief for the government in the face of ongoing wage bargaining, UBA economist Mariano Kestelboim told the Herald that “the word ‘relief’ would be a stretch, because it was expected.”

Nonetheless, “the statistic is of extreme importance for wage negotiations,” Kestelboim continued, adding that “deceleration was expected and confirmed, and will facilitate” collective wage bargaining.

IDESA economist Jorge Colina agreed, showing slightly more caution in that “although it came in lower, it’s still high, which is manifest when the figure is annualized to above 40 percent.”

“March will give a stronger point of reference (for wage negotiations),” he added, forecasting a number “between two and three percent.”

The devaluation brought about a “cascade of measures, and with the dollar at eight pesos, prices have begun to stabilize,” Colina said, pointing to elevated interest rates as having catalyzed “speculation of assets in pesos instead of the dollar” and therefore decreased consumption.

Regarding the effect of the Price Watch scheme on overall inflation, the two economists disagreed on one point, with Colina arguing February’s CPI would have weighted the same without them due to their limited scope, and Kestelboim contending that the devaluation would have had more bite on prices otherwise.

Still high

“Price agreements are not an anti-inflationary instrument. You fight inflation by reducing the fiscal deficit and complementing this with a reasonable incomes policy and wage guidelines,” Colina said.

Teachers’ unions, which continue to strike, have been demanding hikes of 30 percent, which will likely be taken on as a floor for negotiations by organized labour sectors in their imminent negotiations. With inflation for the first two months of the year weighing in at 7.1 percent, the government will strive to ensure that prices will not go up at such high rates for the remainder of the year.

UCA consumers’ association head Fernando Blanco Muiño called for the 11.31 pension hike for the semester announced by President Cristina Fernández de Kirchner to be readjusted, “because when they end up receiving it, official inflation will have eaten it up.”

Analysts still concerned

“There still seems to be a reluctance to recognize true inflation, especially against near-term wage negotiations,” said Siobhan Morden, New York-based head of Latin American strategy at Jefferies LLC, mirroring murmurs among the opposition, which continues to publish its own inflation gauge, after INDEC published its CPI.

The Argentine government drew up the new index after being censured by the International Monetary Fund (IMF) for low-balling consumer prices data.

“I expected an index closer to four percent,” said the Instituto Argentino de Análisis Fiscal consultancy’s Nadín Argañaraz, adding “the risk is that the credibility seen in January will not be sustained.”

The economist considered that the subsidy cuts on public utilities and the result of wage negotiations have yet to be defined before any long-term inflation trends can be forecast.

@franma1990

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