Political Risk Latin America Blog @PolRiskLatam

Argentina economy: No let-up in inflation

Posted in News and Articles, Political Risk by politicalrisklatam on February 16, 2011

by The Economist Intelligence Unit, February 15th, 2011.

Inflationary pressures are building in much of Latin America, the result of strong demand and capacity constraints as well as rising fuel and food prices. Price pressures have been especially strong in Argentina, a country with a weak policy framework. However, monetary and fiscal tightening is not in prospect in the months ahead, given heavy government influence on the Central Bank and a desire to sustain a consumption boom in advance of presidential elections in October.

Several countries, most notably Brazil, have begun to raise interest rates again and to trim public spending in a bid to get inflationary pressures under control. In Argentina, officials refuse to even admit the true extent of inflation. According to government statistics, inflation at the end of 2010 was around 11%. However, the official data series is discredited, and all private and provincial surveys point to inflation in the range of 25-30%. Wage negotiations in the public and the private sector are producing pay increases of upwards of 30%, which raises the possibility of a wage-price spiral.

Despite the risks, the government has taken no policy action to curb demand or restrain fast-paced economic growth, with exceeded 8% in 2010 and is likely to be between 5% and 6% this year. Instead, officials in recent weeks have begun to blame businesses and manufacturers for the problem, and have ordered them not to raise prices. They are also pressuring independent economists and consulting firms to show how they are calculating their inflation indices. Those who refuse to fill out a government questionnaire have been threatened with a steep fine. (continue reading… )

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