June 16 (Bloomberg) -- Argentine labor leaders are demanding the biggest wage increases in more than 15 years to compensate for inflation they say is running at more than three times the official rate of 10.7 percent a year.
In the past month, sugar-cane harvesters won a 43 percent pay rise, cafeteria employees 35 percent and janitors 28 percent. Union leader Osvaldo Iadarola, who represents 20,000 telephone workers at companies including Telecom Argentina SA, said he is seeking a 35 percent increase, along with the right to ask for more in six months if prices continue to rise.
“We want to be prepared so that, if inflation takes hold, we will be able to renegotiate our wages again and not be tied for a year,” Iadarola said in a June 10 telephone interview in Buenos Aires. “Price increases have left workers with a loss of purchasing power.”
Such pay awards will force businesses to increase prices, fueling an inflationary cycle that will lead to reduced consumption, deter investment and brake economic growth, said former Finance Secretary Daniel Marx. In the 1970s and 1980s, the South American country suffered bouts of hyperinflation that peaked in 1989, when consumer prices rose 5,000 percent.
“High inflation means a loss of purchasing power, and definitely the rate of growth will decelerate,” Marx, who runs Buenos Aires-based Quantum Finanzas research company, said in a June 9 telephone interview. “Companies halt investment plans because inflation generates uncertainty.”
Argentina’s central bank manages the foreign exchange rate, allowing the peso to weaken 3.3 percent this year to 3.9274 per dollar at 1:35 p.m. New York time. Thirty-day peso-denominated certificates of deposit pay an average 9.34 percent, according to central bank data.
The yield on the country’s benchmark seven percent dollar bonds due in 2015 fell 31 basis points to 13.28 percent, according to Bloomberg data.
Alberto Sellaro, who owns a shoe factory in Buenos Aires, said his 50 employees will receive a 24.7 percent pay rise in two stages over the next nine months. As a result he will increase his prices for the coming season by 10 percent.
“Nobody can give a 25 percent increase without raising prices,” Sellaro said in a June 10 telephone interview. “Some suppliers are raising their prices ‘just in case,’ and workers follow those raises too.”
‘Redistribution of Wealth’
Economy Minister Amado Boudou, 47, said in a speech on June 8 that wage awards are in line with government policy for “the redistribution of wealth.”
Doubts about the accuracy of data produced by the national statistic institute means labor leaders tend to overshoot in their wage demands because they don’t have reliable figures on which to base their claims, said Marx, 57. Argentines have “lost their bearings” on the rate of price increase, he said.
“It’s a situation that feeds on itself.” said Marx. “It’s hard to measure how much increases should be to maintain purchasing power.”
Economists and politicians, including former central bank President Alfonso Prat-Gay, have challenged official data since former President Nestor Kirchner started to replace personnel at the Buenos Aires-based statistics institute in January 2007.
“There’s always a tendency to demonize salaries and say ‘wages go up and then prices go up,’” Labor Minister Carlos Tomada said in an interview today with Buenos Aires-based Radio Mitre. “In fact, the process is exactly the opposite in Argentina.”
Inflation to Quicken
Inflation will accelerate to 26 percent this year from 15.3 percent in 2009, according to Buenos Aires-based research company Ecolatina, which tracks prices for about 500 goods and services. According to official figures, prices rose 7.7 percent last year and 10.7 percent in the 12 months to the end of May.
Accelerating prices have led unions, which represent about 80 percent of Argentina’s registered workers, to start taking account of inflationary expectations, and not just past price increases, when they make wage demands, said Ernesto Kritz, a Buenos Aires-based economist who tracks labor issues at SEL Consultores.
“This is an understandable change in tactics given the context of growing and high inflation,” Kritz, 66, said in a June 7 telephone interview.
Kritz conducted a poll in April that showed wage talks in 89 of the 113 companies surveyed were influenced by forecasts of how much prices will rise this year.
“That’s pretty dangerous because it may start a cycle of increases that will be really hard to detain” as most companies will pass them on in the form of higher prices, said Javier Paz, an economist at Ecolatina.
Argentines expect prices to rise 25 percent over the next 12 months, according to the median estimate in a monthly survey by Buenos Aires-based Torcuato Di Tella University.
The poll of 1,205 people was conducted by Poliarquia Consultores from June 1 to June 10 and has a margin of error of 3.5 percentage points.
President Cristina Fernandez de Kirchner, 57, said on June 8 that policies to boost consumption and strengthen the domestic market helped the economy weather the global financial crisis and grow 0.9 percent last year. From 2003 to 2008, expansion averaged 8.5 percent per year. On April 9, Boudou said growth will exceed 5 percent this year.
Fernandez’s spokesman Alfredo Scoccimarro didn’t return a phone call by Bloomberg News seeking comment.
Among the biggest wage demands is the 48 percent increase sought by grain and soybean quality inspectors that would take their monthly salary to 6,000 pesos ($1,529), said union leader Pablo Palacio.
“If we don’t settle we will see how we can suspend our activities,” Palacio said in a June 14 telephone interview from the Atlantic port town of Bahia Blanca.
Telephone workers, who staged a one-day strike on June 11, will resume protests if they don’t reach an accord, Iadarola said.
Three offers made by Telecom Argentina and Telefonica de Argentina SA have been rejected, press officials at the two telephone companies told Bloomberg News, asking not to be identified in line with internal policies.
The government is reluctant to rein in wage demands because it needs the support of labor leaders ahead of next year’s presidential election, Kritz said.
“The government has lost its power to control the situation,” Kritz said.
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