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July 26, 2017
Friday, July 14, 2017

Inflation at 1.2 percent in June

A man walking in downtown Buenos Aires as protesters rally.
A man walking in downtown Buenos Aires as protesters rally.
A man walking in downtown Buenos Aires as protesters rally.

INDEC report shows pace of rate is continuing to fall, but it may rise next month

The pace of inflation fell last month with the rise in consumer prices slowing on last month to close at 1.2 percent in June, according to new statistics reported the INDEC national statistics bureau this week.

The data marked the début of INDEC’s new national IPC inflation index, which measures rates throughout the country keeping tabs on 320,000 prices per months, and is expected to become the main indicator of inflation. In contrast, the BA City and Metropolitan indexes, which have been closely watched since the deterioration in the veracity of INDEC statistics under the Cristina Fernández de Kirchner administration, keep an eye on 90,000 prices.

While many economists praised the downward trend seen in June, some anticipate that a sharp hike in gas prices and private health insurance payments this month will push July’s inflation highter.

INDEC’s figure for the national rate of inflation was below the 1.4 percent reported in Buenos Aires City and its Metropolitan area. It also was a little lower than the average inflation reported in the first half of 2017, with inflation totalling 11.8 percent at a national level compared to a clean 12 percent for the Metropolitan area.

Despite the recent improvement, the rate of inflation is unlikely to meet Central Bank President Federico Sturznegger’s publicly stated goal of 17 percent for 2017.

The beginning of the year saw inflation soar, with an increase of 6.3 percent in just three months. It was only last May when the growth in consumer prices lowered to 1.3 percent that the Mauricio Macri administration believed that they are starting to win the battle against double-digit inflation.

“Luckily we are starting to lower inflation, as we had promised, now that the first national index gave us 1.2 percent, this means we are continuing to consolidate a downward trend,” said President Macri on Wednesday during a press conference in Córdoba province.

However, despite the president’s confidence, the Central Bank demonstrated that it was worried about this month’s data, deciding to increase interest rates to close to 27 percent in the Lebac bond secondary market yesterday. This is the highest interest rate set by the Central Bank since August 2016.

Another variable contributing to expectations of higher inflation in July is the devaluation of the peso-dollar exchange rate seen at the beginning of this month. After the exchange rate held around the 16-peso-dollar mark, in the last two weeks the peso has soared to 17.80 pesos per US dollar before settling at 17 pesos. While exchange rate fluctuations don’t tend to impact on inflation in other countries as much, Argentina is usually the exception to the rule, leading some economists to expect it to be a factor.

The Economía & Regiones (E&R) consultancy considered this week that July’s floor would be high due to not only the increase in gas prices (which jumped by 7.2 percent) but also because of the increase in monthly health insurance payments (six percent).

“July’s general inflation already has a high floor, which indicates that it will affect the rest of prices for products (basically foodstuffs and drinks) that will increase during the second semester,” a report stated. The firm predicted that July’s inflation would be around 1.7 percent.

“High core inflation will translate to general inflation not being controlled, which — if this tendency continues — won’t be surprising for inflation to bounce back up during the next few months, thereby stopping any chance of meeting the government’s goal of 12 to 17 percent inflation,” their report read.

A closer look

The differences in the inflation data reported by INDEC throughout the country were wide. The region with the lowest inflation was the northeast, which reported 0.9 percent for the month of June.

In June, sectors that led inflation growth on a national level were recreation and culture services with a 2.3-percent rise, which includes tourism, housing and public services. This was followed by gas at 1.8 percent, and hikes in utility bills and health at 1.5 percent.

Price increases for foodstuffs throughout the region, on the other hand, were lower than the average inflation rate, as fruits and vegetable prices fell to compensate for the increase in dairy and flour products. For example, in June’s statistics for Buenos Aires City and the Metropolitan area, dairy products increased by 1.2 percent and 10.1 percent, table bread by 6.8 percent, crackers by five percent, at the same time that potatoes decreased by six percent, oranges by 4.3 percent and lemons by 10 percent.

Patagonia was the region that experienced the highest rate of inflation for all products.

Herald staff

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