Sept. 15 (Bloomberg) -- Argentines are stepping up purchases of cars and televisions in a bid to beat inflation consumers see accelerating to 25 percent, the second-highest in the world after Venezuela.
Record demand for autos and domestic appliances is fueling economic growth, which Deputy Economy Minister Roberto Feletti estimates at 9 percent this year, the fastest since 2005. The consumer boom will fade by the end of this year as higher prices for food and everyday goods drain household income, said former Economy Vice Minister Orlando Ferreres.
“Inflation will tend to accelerate and output will stagnate,” said Domingo Cavallo, who as economy minister from 1991 to 1996 cut the annual increase in consumer prices -- which had reached 5,000 percent in 1989 -- to zero by fixing the currency at par to the U.S. dollar. A “climate of stagflation” is coming to South America’s second-biggest economy, he said.
Consumer prices may rise more than 25 percent in 2010, the most after Venezuela, as President Cristina Fernandez de Kirchner boosts spending on public works, raises pensions and backs wage hikes for unionized labor, said Ferreres.
“Inflation is like a drug,” said Ferreres, 65, who runs economic consulting company Orlando J. Ferreres & Asociados, said in an Aug. 31 telephone interview in Buenos Aires. The consumer is initially happy with his purchase, he said, “but once the effect is over, he falls into depression.”
‘Worth Much Less’
Ariel Tepper, a Buenos Aires shopkeeper, said he bought an LCD television last month because he expected the price to rise in coming months. Tepper paid for the 4,900-peso ($1,242) TV with 2,500 pesos in cash and took advantage of a credit card promotional offer to pay the rest in six, interest-free monthly installments.
“In the coming months, the 400-peso installments will be worth much less than now, given current inflation,” said Tepper, 24, who said prices of the perfumes and cosmetics he buys to sell at his store are rising about 10 percent per month.
Argentines expect prices to rise 25 percent over the next year, according to the median estimate in a survey published today by Buenos Aires-based Torcuato Di Tella University. The poll of 1,202 people was conducted by Poliarquia Consultores from Sept. 1 to Sept. 7 and has a margin of error of 3.5 percentage points.
Press officials at the Economy Ministry didn’t return messages left by Bloomberg. The government’s 2010 budget forecasts inflation of 6.1 percent this year.
Ferreres and Cavallo are among economists who have challenged official inflation data since former President Nestor Kirchner changed personnel at the national statistics agency in January 2007. Prices rose 11.1 percent in the year to Aug. 31, according to the Buenos Aires-based agency.
Since those changes, the extra yield investors demanded to hold Argentine dollar bonds instead of U.S. Treasuries widened 484 basis points, or 4.84 percentage points, to 677 on Sept. 14. In the same period, the extra yield investors demand to hold neighboring Brazil dollar bonds widened 21 basis points, or 0.21 percentage points, to 211 basis points, according to JPMorgan Chase & Co.
Standard & Poor’s raised the country’s debt ratings one level to B on Sept. 13, citing a “strong economic recovery in 2010 supported by favorable external conditions,” putting the country in the same category as Bolivia and Lebanon. Argentina, which suffered bouts of uncontrolled inflation in the 1970s and 1980s and defaulted on $95 billion of debt in 2001, has never had an investment grade rating.
The difference between inflation and the 9 percent to 10 percent annual interest small investors earn on savings placed in certificates of deposit, means “the banking system doesn’t protect them from the rise in prices,” Ferreres said.
“People seek options such as cars or houses as they try to maintain the purchasing power of their money,” Ferreres said. “They think of ways to beat inflation before their savings are wiped out.”
The auto industry, which accounts for about a third of industrial production, is helping drive 2010 growth by selling a record 620,000 units this year, according to the Argentine Association of Car Dealers. Sales peaked at 614,000 in 2008 before dropping to 530,000 last year.
In August, dealers sold 55,772 vehicles in August, 31 percent more than a year earlier, according to the Buenos Aires-based association.
“People are looking to durable goods including cars because they don’t want to hold onto their money because of inflation,” said Guillermo Dietrich, who owns 10 showrooms that sell Ford Motor Co. and Volkswagen AG vehicles.
Sales of new and used homes in Buenos Aires rose 31 percent in June from a year earlier on purchases by investors seeking “a refuge for their savings, and by families, who see the purchase of property as a safe asset,” the Buenos Aires College of Public Notaries said in a report posted on its website.
Ferreres forecasts the economy will expand 7.5 percent in 2010 and 4 percent next year.
With the rise in consumer spending power outpacing the production of goods, prices will accelerate and supply bottlenecks will emerge, Cavallo said in a Sept. 2 e-mail response to Bloomberg questions.
Cavallo, 64, was appointed minister a second time in March 2001, when Argentina was heading into a third year of recession. He resigned that December, in the midst of a financial crisis that led the country to default on $95 billion in debt, end the dollar peg he created and fall into its biggest-ever annual slump in production.
Argentina’s economy, South America’s largest after Brazil, is accelerating after a 2009 slowdown in growth to 0.9 percent following an average 8.5 percent over the previous six years. Growth will reach 9 percent this year before slowing to 6 percent in 2011, Feletti said in a Sept. 3 statement.
Soaring demand caused television manufacturers to double output in the first five months of 2010 from a year earlier, while makers of microwave ovens tripled production, according to the Association of Electronics Producers, which represents the country’s leading manufacturers of electrical appliances.
“If wages keep rising, we expect sales to maintain growth,” said Alejandro Mayoral, president of the association, in a telephone interview from Buenos Aires.
Credit-card financing jumped 34 percent in the first five months of the year while personal loans rose 21 percent, according to the central bank. Shopping center sales rose 38 percent in July from a year earlier, according to the statistics institute.
Sofia Rodriguez, a 64-year old retiree, said that two months ago she paid 230 pesos ($58) for a computer printer that today costs 350 pesos.
“As soon as I found what I wanted, I bought it,” Rodriguez said in an interview in Buenos Aires. “I knew prices would keep rising.”
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