Look Who’s Lying About Inflation Again

A dismissive attitude to the suffering of the population.

By Bianca Fernet, Argentina:

What is this, 2013?

The headlines surrounding Argentina’s economy read like a veritable tale of two countries. If you read the international press or run in diplomatic circles, sheer euphoria. Argentina has quickly righted the economic boat by settling with the holdout “vulture” funds, removing currency controls and export restrictions, and restoring a level of respectability and professionalism to governance.

Inside Argentina, headlines are telling a story we’ve all heard before, starring inflation. Persistently high and rising inflation is troubling, but more troubling is the government’s flippant and dismissive treatment of how difficult it will be to quash inflation and just how much it is affecting the lives of Argentina’s people.

In early January, Finance Minister Alfonso Prat-Gay stated that the monthly inflation increases of 5% in December were a “sensation” and that, “we are coming down in the first 15 days of January to inflation levels more or less similar to what we experienced in October [1.5%] and September [1.7%].”

Prat-Gay went on to chalk up December’s runaway inflation to a result of lifting the currency controls known as the cepo and predicted that inflation would be well below 1% per month by February. Spoiler alert: that didn’t happen.

How High Is Inflation?

Inflation is high enough that everyone is squabbling over how to measure it again.

In the City of Buenos Aires during the first trimester of 2016, the price of the basic basket of foods increased 14.5%, only slightly higher than the total basket including other goods and services that rose 11.3% over the same period. It’s staying up there too — from December to January, the basket of consumer goods rose 5%, whereas from February to March it rose 4.4%.

Private entities consulted by La Nación estimate that March saw a monthly inflation of 3.7%, which translates into inflation between 32% and 35% per year — at or above the 30% inflation presided over by former President Cristina Fernández de Kirchner. In April, estimates predict inflation will exceed 6%, or 40% year-on-year.

You would have to be actually dead to not notice how hard 6% monthly inflation bites at your lifestyle.

To be fair, and contrary to the belief of many porteñosArgentina does not end when you cross General Paz Highway at the capital city’s limit. But the national statistics agency INDEC is still not publishing inflation estimates, and according to Prat-Gay, it will not be in condition to publish official inflation numbers until 2017. And since Buenos Aires Province is home to over half of Argentina’s population, you would think Buenos Aires would be a fair proxy for statistics for the country as a whole. But you’d be wrong.

In the beginning of April, the government decided to change the way it measures economic growth, which determines payments on warrants tied to growth, and to use a consumer price index showing less inflation to determine payments on inflation-linked bonds.

Regarding growth, the government is revising growth data from 2004 and 2015 and using a different base year for calculations. This change will affect whether or not GDP warrants that are paid when growth exceeds 3% will trigger a payoff this year. A bit non-transparent and disappointing for sure, but it is likely that the methodology for calculating economic growth warrants an overhaul. An exercise for another day.

Let’s focus on inflation again — and specifically on the decision to use an alternative consumer price index to Buenos Aires to calculate Argentina’s inflation. Rather than the capital, Argentina’s inflation will be measured by the consumer price index in San Luis Province. You may now commence scratching your head.

San Luis Province

If you aren’t familiar with the province of San Luis, you are not alone.

San Luis City, the capital of San Luis Province, is not even within the largest 20 cities or towns in Argentina.

With a 2010 population of 431,588 people, the province contains only about 1% of the population of Argentina and isn’t what you’d consider a thriving business hub that weighs heavily on the economic importance scale.

San Luis is east of Mendoza Province (where the wine is) and south of the provinces of San Juan (where mining is), La Rioja (where Menem is), and Córdoba (where the industry is).

At Bloomberg’s Argentina Summit, Central Bank (BCRA) President Federico Sturzenegger defended the use of San Luis’s inflation index by stating that “the cost of living in San Luis is more in line with the rest of Argentina.”

Conveniently, prices in San Luis have risen much less than in Buenos Aires. In February they rose only 2.7%, compared to the 4.4% increase experienced in the capital and 3.07% in Córdoba, the country’s second-most populous province.

San Luis’s inflation numbers were used as an alternative to the unreliable data published under Cristina due to the transparent methodology used to calculate it. But that argument really no longer holds and provides outside observers with an unrealistic picture of what inflation in Argentina is today. Furthermore, at the beginning of the year, when San Luis posted inflation numbers double those of Buenos Aires, the government stated that it would use consumer price data from both regions because they use “similar and reliable methodology.”

What Is Causing Inflation?

So why did the government suddenly decide that San Luis alone should serve as the benchmark for Argentina’s inflation? While the initial inflationary effects of Macri’s economic policy changes from removal of currency controls and export barriers may have run their course, a new set of inflationary measures resulting from the removal of utility subsidies are just coming to the fore.

Argentina’s economy is facing inflationary pressure from multiple fronts, but the removal of utility subsidies is currently the most pertinent and it affects the City of Buenos Aires and its surrounding suburbs more than the rest of the country. In Buenos Aires, higher electricity prices resulting from the partial removal of energy subsidies was the most pronounced source of inflation for the first three months of 2016. While the Buenos Aires statistics agency sees food prices stabilizing in April, this month increases in the price of gas (100%), water (300%) and transportation (300%) kick in, which are likely to hike Buenos Aires inflation even more.

There is certainly an argument that Buenos Aires inflation numbers overstate the problem to some extent, but not to an extent great enough to use San Luis as a proxy for the country.

What Happens Now?

It’s time for Argentina’s government led by President Mauricio Macri to stop collectively patting themselves on the back  for not being kleptocratic maniacal populists and to realize that Argentina’s economy begins and ends with Argentines rather than endless rounds of courting ambiguous international investment.

In a blatant reversal of his January promises of 1% monthly inflation by February, Prat-Gay has now promised that the first half of the year was spent “ordering things” and that “in the second half [of the year] growth will reappear, inflation will slow and we’ll have  a more orderly situation with confidence and the ability to incorporate large investment projects while looking at the long term.”

That’s very nice, except that the short-term tools a country has at its disposal to push inflation down are anti-growth in nature. On the monetary policy side, Argentina’s Central Bank has to excrete tight monetary policy by keeping interest rates high — currently at 38%. On the fiscal side, the government has been reducing public expenditure where it can, primarily in the form of layoffs.

The government’s economic team is congratulating itself on settling with the holdouts and returning Argentina to international capital markets, following the swift removal of currency controls that caused parallel currency markets and the removal of export barriers. These politically difficult policy shifts had relatively straightforward economic consequences, one of which is inflationary pressure that the government is hoping to offset by growth led by foreign direct and indirect investment.

Foreign investment is critical to Argentina’s emergence from a decade of economic mismanagement and blatant lies about statistical figures. The need for dollars from abroad is exacerbated by the economic nightmare going on in Brazil, a major destination for Argentine exports, as well as the worldwide trend away from emerging market investment.

Yet from here on the ground, it seems the government’s economic team should take a break from the “Argentina Is Great” dog-and-pony global roadshow to come to terms with the economic havoc that inflation is wreaking at home.

President Macri took an important step by stating in a public interview that inflation is the responsibility of the government. He has also introduced socially popular measures to offset inflation’s impact on the nation’s poor, including transportation subsidies in the interior and a promise to put off further subsidy cuts and price on utilities until 2017.

In the same interview, Macri expressed confidence that inflation would go down during the second half of 2016. But if controlling inflation rests almost solely on attracting foreign investment, that is troubling. Promises of investment, especially from the United States, may take a while to come to fruition because that is the nature of foreign direct investment. The dust has barely settled on the first bond issuance, and the majority of the the economic effects of this investment on inflation will likely lag behind by at least a few months.

Promising an end to inflation and return to growth in the second half of 2016 is premature, and Minister Prat-Gay should reconsider his outward posturing. His relationship with the financial markets was described as “helpful” by investors in the recent bond issuance, but back at home his dismissive attitude to the suffering of a majority of the population is downright hurtful. By Bianca Fernet.

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  30 comments for “Look Who’s Lying About Inflation Again

  1. HD says:

    Suerte, Bianca. Your country is wonderful and so are most of your countrymen and women.

    Your consecutive governments on the other hand…

  2. Chip Javert says:

    Well, I for one, have been wondering for decades (I’m old…) where San Louis actually is, as well as what its inflation rate is, so this is great news.

    The sound of the current government patting its self on the back is deafening.

    Call me cynical, but I bet some/all of the *NEW* money raised in the international markets (aka: fools and their money…soon parted) just might get spent “subsidizing stuff” until the magic of organic growth takes over, which just possibly might not be the best use of capital.

    Might be time to bid for the Olympics and threaten the Islas Malvinas again to take people’s minds off current events (and affordable food).

  3. Chicken says:

    A switch to renewable energy ought to put the brakes on inflation.

    • walter map says:

      If you think about it, on a functional level inflation is really very easy to control. The problem lies in reducing the corrupt governance of money supply, and that doesn’t often happen in the absence of a system collapse which provides an opportunity to replace the crooks, at least temporarily.

      All of humanity’s most important problems, in generation and failure of resolution, can be attributed almost exclusively to corrupt governance. Unfortunately the dynamics of political economy quite guarantee corrupt governance. And it is later when you think.

  4. One major problem, which is not unique to Argentina, is the implementation of automatic data collection, computerization, and data analysis techniques such as econometrics and “big data,” which allows the operationally real time tracking of the effects of policies and procedures.

    It is increasingly clear that most, perhaps all, of these policies and procedures are based on based on archaic and obsolete observations, and ideological fantasies, and are unable to deliver the results promised and/or intended, which is almost immediately apparent and is widely disseminated.

    The continuing information campaigns of the FVP, La Campora, by major Peronist/FVP officials such as Dr. Kiciloff, Scoli, etc. are keeping the Argentinean people informed about the recurring looting of their retirement/savings accounts and theft of the public assets such as YPF, recreated with so much time, effort, and money by Kirchner/Fernandez, even if they can’t prevent it.

    FWIW: The U.S. would be well served by similar public information efforts to inform our electorate as to the actual motivation and results of the recent socioeconomic/financial initiatives/proposals in this country including NAFTA/TPP/TTIP and the need for more college graduates and H1b visas to meet the need for STEM employees.

    • Chip Javert says:


      Data integrity isn’t the proximate cause of Argentina’s problems.

      It’s more in the area of personal integrity, credibility, vision and leadership. The new guys might be missing some of this.

      • nick kelly says:

        And the last guys had it? They are the ones who lead the country to the brink of becoming Venezuela, i.e., disaster.
        Maduro, the former bus driver who is driving Venezuela, may have vision but when you run out of toilet paper ( this actually happened) a lot of philosophical discussions kind of get put on the back burner.

    • walter map says:

      “to meet the need for STEM employees.”

      To meet the need for STEM employees who can be coerced to work for cheap.


  5. Bigfoot says:

    Answer to the title question; Yes, all governments lie & Argentina is no exception.

    For a look at World Bank tentacles, IBRD loans guaranteed by the public by country, here is an eye opener. And the world bank came from????


    Not shown on the data link regarding Argentina is 2016. It’s only $ 9.6 billion.

    So $9.6 billion from the world bank & a few months back $5 billion in loans from wall street banks structured into a 1 year loan, backed by sovereign bonds, what could possibly go wrong. The interest rate on the loans is Libor+6.15%.

    Good luck Argentina

  6. Michael Gorback says:

    What I want to know is how much a house in Doug Casey’s Cafayate paradise has appreciated in dollar terms.

    • Petunia says:

      I like to know how much the average worker really earns in Argentina. When I lived in FL, I saw many Argentine workers making minimum wage working there. They were all illegals working in the building trades. They seem to prefer minimum wages in FL to Argentina and Uruguay.

  7. nick kelly says:

    But after 7 defaults ( 2 this century) failed currencies, inflation at times that has been far higher than the period the author is complaining about- you’ve got to try something else.
    The country has returned to the bond market- borrowing 15 billion.
    A few years ago it was observed that in Buenos Aires province, half the workforce worked for the government.
    It probably is too early for the new administration to be praising its results- because as Prat- Gay said “we are trying to undo 50 years of maladministration.’
    And that takes time.

    • Bigfoot says:

      “we are trying to undo 50 years of maladministration”

      Of course the only way to right the SS Debt ship flying the Argentinian flag is to take on billions of dollars of loans from wall street, imf, world bank. Hmmmmmm. It seems I’ve seen this pattern all over the world for decades. Look at my link above.

      Just like all the other countries that are ‘helped’ by the imf, they end up having their resources sold off & strip mined. One of these resources, water, will one day garner the same attention as oil & energy do currently. Did you know that at one time Buenos Aires municipal water system was bought by Enron (Azurix). I’ll link a few dated articles below. The main point is the cartel comes in, makes loans to countries that can never be repaid, & eventually takes over that countries natural resources. Water is one of the most important but discussed infrequently. Once an entity owns the majority of natural resources (privatization) do they not end up with the majority in a stranglehold. Whenever you hear this term (privatization) on the political front, sit up & pay attention




      “In particular the IMF has objected to Duhalde’s announcement of a reduction in the sales tax from 21 to 19 percent. It has also demanded that the government raise public utility rates & move ahead aggressively on foreclosing on a quarter million mortgages that are now in default. Driving tens of thousands of families from their homes is seen by the agency as a necessary measure to restore investor confidence.”

      In short, Argentina sold itself to the devil.

      • polecat says:

        Yes…”Investor CONfidence”….ha ha

      • nick kelly says:

        These problems didn’t begin yesterday, or in the 80’s. At the beginning of the 20 th century Argentina was one of the most prosperous countries in the world.
        If you don’t want to deal with the IMF the answer is simple- don’t go broke. The IMF is the lender of LAST resort. You ever watch the Scottish lady on TV that counsels spend thrift couples? She lowers the boom- she tears up their credit cards. They get a jar with cash to last them that month.

        Did you read what I wrote about BA province having half the work force work for the government? How the f*ck do you expect a place to prosper when half the labor force are bureaucrats? How do they pay them? They print money- then the currency collapses- read up on Argentina’s currency collapses.
        Gee- how does the government get money now?
        Well let’s see. A lot of Argentines, knowing their currency was dubious, had US dollar accounts. So the government swooped in and seized them. Oh- but that would be just the money of fat cats and (shudder) evil corporations right?
        The Bank of Nova Scotia had house wives beating on its shuttered doors for months demanding their money.

        Try and break out of this white hats versus black hats- evil IMF, evil banks, versus virtuous peasants syndrome that infects these comments.
        Many, many people have said that the fundamental problem with Argentina is a detachment from reality.

        • Bigfoot says:

          @nick kelley

          Your right, Argentina’s problems didn’t start recently or in the 80’s. IMO, the most serious problems relative to where we are at today probably started with the power change in 1930 (coup) that discarded their constitution & installed a form of corporate fascism. Juan Peron was an instigator of this coup & later became president. They also went off a gold standard one year before this so there was a decoupling from a tangible monetary backing that happened also. The US backed the 1976 coup which installed one of the most brutal regimes they ever had. Thousands were slaughtered. They have a long & convoluted history for sure but you have simplified it for us in such a great way with your rambling mess of a post.

          “If you don’t want to deal with the IMF the answer is simple – don’t go broke.” They went broke because???? Yeah, it’s real simple, black & white, cut & dried.

          Yes, I read your claim that 50% of the BA province worked for the government. I read all comments. Where did your supposed factoid come from? The better question rather than quibbling about the percentage of the BA populace employed by government is how did this all transpire?

          For a moment there with all your banter about going broke & printing money I thought you were talking about the US.
          ” How the f— do you expect a place to prosper when half the labor force are bureaucrats?” I don’t expect any society can actually prosper under a fascist regime.

          I would wager that you didn’t read a single link I provided due to your following outburst>
          “Try to break out of this white hats versus black hats – evil IMF, evil banks, versus virtuous peasants that infects these comments.”

          I’m glad you enjoyed my post. Let me help you out here nick, I’ll repeat this just for you because apparently you missed it the first read. The main point, I repeat, the main point ———-

          ” The main point is the cartel comes in, makes loans to countries that can never be repaid, and eventually takes over that countries natural resources.” I supplied links (have loads more) for people that may want to explore things for themselves & may possibly have an open mind. Care to actually discuss the main point of my opinion? If you really explore this concept (my main point cited above) you might actually see the connections. They are there for anybody who wants to take a look. This is/has been taking place all over the planet for decades. The world bank has funded more communist regimes than anything else. This is a fact. I can supply links but I won’t bother because it would be a waste of time with you. If your conclusion is different than mine regarding my main point, then state why in a clear concise manner. Try to add some value. Don’t like my post, tough!! Don’t read them.

          “Many, many people have said that the fundamental problem with Argentina is a detachment from reality.”

          Thanks for your value laden opinion & ending statement, it added a lot to the conversation & really explained everything in such a concise manner. I’m looking forward to your next insightful post. Hopefully, in the meantime those Argentinians will just get real & all will be OK.

      • nick kelly says:

        ‘Don’t like my post so don’t read them’
        The exchange began with you responding to my post, so…

    • Chicken says:

      USDOD is the largest employer in the universe.

  8. OutLookingIn says:

    South America as a whole is unraveling.
    Venezuela is currently suffering inflation running at 750%!
    Brasil has a governance catastrophe with an impeached president.
    Columbia still struggles with large rebel groups.
    Mexico subsidizes PEMEX as their oil reserves run out.

    These are just a few items of ongoing concern.
    There is a brick in the BRIC wall that is failing.

    • Wolf Richter says:

      Article on Mexico is in the works and will be posted shortly … adding to the sense of “unraveling.”

      • polecat says:

        Oh….great! can’t wait to read about another stitch coming apart at the seam,….. or rather seams!! ……..sigh

  9. walter map says:

    Oh pleeze. What lies behind us and lies before us are small matters compared to what lies right to our faces.


    It is a fact that those who lie, cheat, and steal to win have an enormous advantage over those who do not, and therefore the world is owned and operated by crooks. Scum floats.

    The real mystery is how human civilization has somehow managed to persist and has not yet suffered a comprehensive total existence failure under the sheer weight of its own inequities and its natural propensity for self-destruction. Humanity certainly has numerous ways to exterminate itself and will eventually succeed. Maybe tomorrow.

  10. walter map says:

    “A dismissive attitude to the suffering of the population.”

    Which is practically universal, both the suffering and the dismissiveness.

  11. islander says:

    For Argentina’s sake i hope the international community, led by the usa, allows the country to put up some effective tariffs to protect the vestiges of its industries. Without import controls it is impossible for high value industries to establish and grow. It’s really simple: let’s say an entrepreneur wants to build up his back yard garage into samsung industries. Seeing as he starts in a backyard, existing competition from overseas would bankrupt him hundreds of times over the thirty years needed to build up samsung.

    Global commerce in unchecked form always tends toward monopolies. Developing Countries in particular need the freedom to nurture and protect young industries. i hope argentina gets a chance to recover through internal economic developments, perhaps by using inflation in a virtuous cycle of growth to expunge debt.

  12. d says:

    Senorita Fernet.

    Wanted Christina gone. She has this.

    Wanted The Vulture crisis resolved. It is.

    However Senorita Fernet is still not happy. Or even vaguely placated.

    Senorita Fernet. Is. Now blaming the new guy.

    For not dealing instantly with the Issues left by the ugly thieving old girl. And turning Argentina in a global growth leader overnight.

    What the New guy is not, is a Magician. Clearly Senorita Fernet expects him to be.

    The New guy must be really desperate for a job, or have a lot of self belief, and the desire to try and make his country a better place.

    Trying to turn around the Entrenched Basket Case, that is Argentina, is not a task I would wish on anybody.

    Perhaps a little Patience, would be an apt 2016 Christmas gift, for Senorita Fernet..

    • nick kelly says:

      Agreed. BTW- how about the guy who wants Argentina to embark on inflation to get out of its debts!! Like some more same old.
      Maybe he thinks the buyers of Argentine debt would be content to get back
      their money in Argentine money!
      Quite a few people wonder about lending to it for 30 years at all.
      The bonds are of course denominated in US$.

      • Wolf Richter says:

        Argentina doesn’t have much peso debt… since it has been devalued by inflation for years. And it cannot use inflation to get out of its foreign-currency debt, hence the defaults. It just issued another $15 billion in foreign-currency debt, which it cannot devalue via peso inflation. And it will issue a lot more $-debt.

        Why foreign currency debt? Because the rates are lower, hence it’s cheaper. No one trusts its peso debt, with inflation running at 30% to 40% a year…. and investors demand huge yields to buy it.

        But since it cannot use inflation to get out of its new foreign-currency debt, at this pace, we’ll see another default 10 or 20 years down the road.

        • nick kelly says:

          Can’t we hope that the place can be turned around?
          There are heroes there- its farmers. Big ag or small ag, without ag the place doesn’t have much to export. ( I count their wine as ag, which along with Chilean is good value for a budget guy) But it has some. I just got back from Uruguay ( which has almost no manufacturing- just ag) and noticed some things made in Argentina. e.g. toilet paper.
          While drinking SA wine and commenting I resolve to use moderate language.

        • Wolf Richter says:

          Yes, we can and should. I would very much like for things in Argentina to take a turn for the better, and I hope fervently that they will. But nothing is going to work unless they bring inflation down to near-zero and unless they can inspire some confidence in their currency. This will take a long time, if they even have the political will to do it.

        • d says:

          “This will take a long time, if they even have the political will to do it.”

          Yes with the leftist in the street demanding more now, all problems are caused by the right, and must be resolved by removing them. TODAY .

          The chances are not good.

          The last Military Administration in Argentina was a bad one.

          Not all military administrations are bad. Argentina like the Philippines is a country that would benefit form 15 – 20 years of good military administration

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