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June inflation slows to 1.3%

Despite inflation on food and drinks prices rising from 0.7 percent in May to 0.8 percent in June, a large deceleration over the past few months is evident in this category.
By Fermín Koop
Herald Staff
Downward trend in prices consolidated after January devaluation

Prices rose 1.3 percent in June, consolidating the downward trend after January’s devaluation, according to to the government’s consumer price index released yesterday by the INDEC statistics bureau. So far this year, prices have grown 15 percent.

The figure, which wasn’t announced by Economy Minister Axel Kicillof due to his trip to attend the BRICS summit in Brazil, was 0.1 percent lower than the 1.4 percent climb registered in May. Cabinet Chief Jorge Capitanich had anticipated that the “downward trend” would be seen in June’s figures.

The government’s consumer-price index released yesterday showed a decline in price hikes across the board, with decreases in most of the categories if compared to May. Garments and education rose 1.3 percent, leisure activities 1.8 percent, transports and communications 0.7 percent and house maintenance 0.9 percent.

The relative exceptions to this slow-down included food and drinks which increased 0.8 percent, health care costs that rose 3.1 percent and housing and basic services that increased 3.3 percent, as a consequence of the cut to subsidies for natural gas and water.

Looking closely at the report, water rose 15.5 percent and household fuel 27.1 percent, while medicines rose 2.6 percent and health care plans 5.2 percent.

“The downward trend in prices has now been consolidated. After the growth registered in January, there’s now an inflation rate similar to the one registered last year,” Mariano Kestelboim, University of Buenos Aires economist, told the Herald. “This month we see the effects of the cut in subsidies to water and (natural) gas, and most expensive fuels. The figure will remain stable during the next few months.”

Even though food and drinks went from 0.7 percent in May to 0.8 percent in June, a large deceleration over the past few months is evident in this category, which represents 30 percent of the inflation index. While in January inflation in food and drinks hit 3.3 percent and then in February four percent, the rate has dropped since then. In June, vegetable prices rose 2.7 percent, dairy 1.3 percent and beef 0.4 percent, while fruit dropped 0.7 percent.

“If you don’t take into consideration the effect of the cut to subsidies, inflation would be lower than one percent. Last year before the methodological change, inflation was between 0.8 and 0.9 percent, a similar level,” Plan Fenix economist Ariel Setton told the Herald. “There are multiple effects. While businessmen weren’t able to carry out all the price increases they wanted to, the Price Watch programme helped to lower prices.”

When added to an official inflation rate of 3.7 percent in January, 3.4 percent in February, 2.6 in March, 1.8 in April and 1.4 in May, the government estimates prices have risen 15 percent in the first five months of 2014, exceeding the 10.4 percent that was estimated in this year’s Budget for the entire year.

A Reuters poll of 10 analysts showed a median forecast of 1.8 percent with expectations ranging from 0.8 percent to 2.3 percent. The broad spread underlined the paucity of available information. Meanwhile, opposition legislators are expected to announce today their “Congress CPI” which is expected to be about two percent.

The federal government released in January a new national price index as required by the International Monetary Fund (IMF) to lift the motion of censure applied to Argentina last year due to the lack of credibility in inflation and economic growth data. The index was created in consultation with the IMF, which is now assessing the changes carried out by the government on its data, after already having highlighted them.

Unlike the old index, which measured prices only in the Greater Buenos Aires area, the new index covers 200,000 prices across the nation in six main regions: Patagonia, North East, North West, Cuyo, Metropolitan Area and Pampeana. A basket of goods was created for each region based on its consumption characteristics.

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