Don't Tell Zimbabwe: Argentina Is Member of Venezuela's 25% Inflation Club

Margarita Barrientos doesn’t need an economist to tell her Argentina’s inflation is higher than official reports. She just has to look at her shopping receipts and the growing line outside her Buenos Aires soup kitchen.

“I used to pay 30 pesos ($7.70) for a 10-kilo box of noodles and now I pay 52 pesos, nearly double,” said Barrientos, 48, who has served food since 1996 from the ground floor of the two-story house she shares with her husband and 10 sons near a slum called Fort Apache. “This is the worst time I can remember in terms of the number of people and their needs.”

Economists, including former central bank President Alfonso Prat-Gay, say annual price increases are more than 25 percent, which would make Argentina’s inflation rate the second highest in the world behind Venezuela. Both countries would take the inflation crown from Zimbabwe, where prices climbed 500 billion percent in 2008, according to the International Monetary Fund, before slowing last year. Argentina’s statistics agency said prices rose 9.7 percent in March from a year earlier.

Quickening inflation in South America’s second-biggest economy isn’t a concern only for the poor. Doubts about the government’s data mean investors demand higher yields on Argentine bonds, said Edwin Gutierrez, who manages $5 billion in emerging-market debt at Aberdeen Management Plc in London. The current yields on Argentine debt of about 12 percent are unsustainable, Prat-Gay said.

“Anyone who’s playing Argentina knows that they’ve been fudging the data,” Gutierrez said in a May 5 interview.

Economy Minister Amado Boudou said the government’s inflation data accurately reflect cost increases for the poor. Complaints that inflation is being underreported come from wealthier Argentines and investors who hold debt that yields more when inflation quickens, he said in an April 14 interview.

Polls show Argentines expect prices to surge 30 percent over the next year. The government will publish April’s inflation data May 12.

Extra Yield

The extra yield investors demand to buy Argentine bonds over U.S. Treasuries is 696 basis points, or 6.96 percentage points, according to JPMorgan Chase & Co. The so-called spread for Iraqi bonds is 3.88 percentage points. The Dominican Republic, whose $46 billion economy is barely one-tenth of Argentina’s, sold $750 million of bonds last month yielding 7.5 percent. Argentina’s dollar bonds due in 2015, by comparison, yield more than 12.5 percent.

Higher bond yields make it more expensive for President Cristina Fernandez de Kirchner’s government to build roads, pay for welfare programs and support subsidies for buses and trains.

‘Normal Country’

Argentina’s borrowing costs began climbing after then- President Nestor Kirchner changed personnel at the national statistics institute in January 2007 in a bid to “improve operations,” he said at the time -- a move former central bank President Martin Redrado said created uncertainty about the official data.

The gap between Argentine and Brazilian bonds, which had been almost even in January 2007, began to grow, widening to more than 15 percentage points last year before falling to 5.38 percentage points on May 10.

“You can’t be a normal country if you don’t have a statistics bureau that has the credibility of your own population first and the rest of the world,” Redrado, 48, said in an April 15 interview. “What you need to ask from the national statistics bureau is what we always ask from the markets: full disclosure.”

Argentina’s history of hyperinflation -- price increases peaked at more than 5,000 percent in 1989 -- made Kirchner’s government reluctant to admit the actual figures, former Finance Undersecretary Miguel Kiguel said in an interview.

Faster inflation has raised tensions between unions and companies as workers demand that wages keep pace with prices. Employees at a factory owned by Arcor SA, Argentina’s biggest candy exporter, ended a strike this month after securing 30 percent higher salaries.

Wage Demands

“Unions are asking for raises of between 25 percent and 40 percent,” Kiguel, 56, said in a May 7 interview. “This doesn’t happen in countries where there isn’t inflation.”

Surging government spending is behind the price increases, said Daniel Kerner, an analyst at the Eurasia Group in New York. Government outlays before interest payments rose 40.1 percent to 29 billion pesos in March from a year earlier as revenue increased 39.9 percent, the government said.

President Fernandez says her policies helped the economy grow 0.9 percent last year during the global financial crisis after annual expansion averaged 8.5 percent from 2003 to 2008. Economy Minister Boudou forecasts growth of at least 5 percent this year.

‘Different Perception’

Boudou said the government is working to change how inflation is measured and that it is “doing well” in its efforts to keep prices steady for the poor.

“Our index is based on the cost of living for the lowest sectors of the population,” Boudou, 47, said in an April 14 interview. “It’s understandable that other sectors, particularly the middle and upper class, have a different perception.”

Barrientos said her experience disputes his argument: What she can buy with her monthly budget of about 10,000 pesos in donations is shrinking faster than government figures suggest.

“In recent months, many times we were left without food for the people, even after they waited two hours in line,” she said while helping volunteers serve rice and hamburgers to about 100 people. “I hope that things get better, that our dreams don’t die, because the situation we find ourselves in is very difficult.”

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

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