Argentina Fails to Tame Stubborn Inflation

Argentina significantly overshot its inflation target in 2017 as prices rose almost 25% from the previous year, raising questions about the country's ability to tame a problem that has plagued it off and on for decades.

Consumer prices surged 3.1% in December from the previous month, pushing the annual inflation rate to 24.8%, far beyond the central bank's target of 17%.

Last month, officials relaxed the inflation targets for the next two years, acknowledging they have been unable to combine stronger economic growth of about 3% last year with a significant decline in the inflation rate. The problem has been compounded by a decision to raise public-utility rates to help cut billions of dollars in budget-busting subsidies.

Officials raised the 2018 inflation target to 15% from 10% and pushed the original 2019 target of 5% forward to 2020.

"A big portion of the inflation rate comes from rising utility prices," said Gabriel Caamaño, an economist at Consultora Ledesma, a local research firm. "You're trying to lower inflation and adjust utility prices at the same time. It's very hard to do both things at once."

Rising prices for electricity, gas and other utilities accounted for about a third of the overall increase in consumer prices last year, Mr. Caamaño said. Public-utility prices rose by about 40% during the year, while unregulated consumer prices increased by closer to 21%, he added.

"There are serious fiscal problems and that is the real cause of inflation," said former Finance Minister Guillermo Nielsen. "We see monetary policy expanding highly in a way that's out of touch with the Argentine economy. And we've got inflation targets that won't be met."

Many economists say while the country's inflation rate remains high, it is declining and headed in the right direction. Still, there is significant debate about how quickly the government should be moving to cut spending and slash its budget deficit. Analysts note that Argentina's monthly inflation rate puts it out of sync with most other economies in the region.

Brazil, its largest neighbor and biggest trading partner, expects its inflation rate for all of 2017 to have come to less than 3%.

Mr. Caamaño said the inflation rate would decline this year but would likely be closer to 19% than the 15% target. He said Argentina could lower the rate faster by delaying utility price increases but suggested that wouldn't be a wise long-term solution.

"That would be unsustainable, because sooner or later those utility prices have to go up," he said.

--Alberto Messner contributed to this article.

(END) Dow Jones Newswires

January 11, 2018 17:22 ET (22:22 GMT)