May inflation to hit 0.6%

Argentine Economy Minister Felisa Miceli is accumulating cards for her clash with former Finance Leader Roberto Lavagna. The main move will be to cause inflation to hit lower than the 12.3 per cent posted in 2005. May data will help: the Argentine Statistics Agency (INDEC) will announce this Monday that retail price increase has settled at 0.6 per cent or even lower. In the last week, food reduction helped cutting final figure. This is obviously far away from "zero inflation" expected by Technical Coordination Secretary Guillermo Moreno. An estimate made by this officer as if the entire economy could be controlled all the time.

May inflation would hover around 0.6 per cent, though it may fall to 0.5 per cent. Official data will be disclosed by INDEC on Monday, whose survey will show, on the one hand, a beef and vegetable price decrease; and on the other, an increase in clothing and building costs.

If this piece of information is confirmed, May inflation would be in line with (or even below it) figure posted in the same month of 2005. In May 2005, consumer price index had leaped 0.6 per cent.

This development goes hand in hand with government intention to cause 2006 inflation to settle below 2005's (12.3 per cent). June outlook is favourable and there's every sign that index may rise less than the 0.9 per cent posted a year ago. Technical Coordination Secretary Guillermo Moreno's dream of achieving zero inflation in May is impossible.

Widespread trend

Although bearing a strict program to keep prices under control, the economic team is far from solving current inflationary problem. This results as a consequence of a monthly increase in almost all areas, which shows that this phenomenon goes far beyond specific adjustments (in tourism, clothing or meat), for we are talking about a widespread trend in almost all economy prices.

Central Bank follows a cautious monetary policy, with a good Argentine peso absorption capacity and a slight interest rate hike. However, governmental expenditure rise and population income increase (in several cases, above corporate productivity) indicate that this inflationary problem will continue during 2006 and it may extend to 2007.

In the following hours, an agreement with tourism will be signed in Economy Ministry so as to avoid leaps during the winter holidays. Ticket and hotel prices soar during high winter season, thus affecting index (though this may be felt in July).

On the other hand, private school instalment increase may be felt this month, but adjustment will be gradual.