Argentina's Inflation Target Remains Elusive

By Taos Turner Features Dow Jones Newswires

Argentina's decade-old inflation problem is showing few signs of going away anytime soon, according to a new government report.

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Consumer prices rose 1.5% in October from the previous months, pushing the inflation rate so far this year to 19.4%, the national statistics agency said Tuesday. That is more than two points higher than the target set by Argentina's central bank for all of 2017.

"This is not a good number," said Gabriel Caamaño, an economist at Consultora Ledesma, a local research firm. "Neither is it a good number when looking at the inflation target for 2018. Even the core inflation rate is well above what the central bank needs to hit its target."

Though doggedly persistent, the inflation rate is decelerating overall and is a far cry from July, 2016, when price increases spiked past 40% on an annual basis, pummeling consumers whose purchasing power was declining almost every day. These days, thanks to salary raises, wages for many people are rising at a faster pace than inflation.

That is boosting spending and economic growth, which is expected to total close to 3% this year. Pollsters say that this helped lead more Argentines to vote for the ruling party in last month's mid-term congressional election, empowering President Mauricio Macri to pursue ambitious plans to overhaul the tax code.

But some of Mr. Macri's plans could anger voters. In the months ahead, the government is expected to slash subsidies for gas, electricity and public transportation, which would raise prices of those and other goods and services.

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Core inflation was up 1.3% in October and 17.6% from the beginning of the year.

"This is not a disaster," said Mr. Caamaño. "It doesn't show a reversion of the trend towards disinflation. But it shows that it's proving very costly to get below a certain level."

Mr. Macri won widespread backing in the election. But many Argentines say he has failed to tame inflation as expected. Such perceptions could spread when consumers feel the pinch of higher utility and public service prices.

"That could transform into a dangerous boomerang" for Mr. Macri, said Juan Germano, a political analyst at Isonomia, a Buenos Aires-based polling firm. "That said, Argentines have become accustomed to living with high inflation."

(END) Dow Jones Newswires

November 14, 2017 16:59 ET (21:59 GMT)