Argentina inflation spikes in February due to electricity rate hikes

Consumer prices in greater Buenos Aires rose 2.5 percent in February over the previous month, Argentina's official Indec statistics agency said on Thursday, above median expectations in a Reuters poll for a 2.1 percent rise. That was nearly double 1.3 percent inflation in January, driven by an increase in electricity rates after President Mauricio Macri cut subsidies to consumers as part of the center-right government's efforts to close a yawning fiscal deficit.
The government will continue to raise electricity prices in March, while gasoline prices are expected to increase in April. Regulated price increases present a challenge to the central bank's goal of inflation between 12 and 17 percent in 2017. Private economists see consumer prices rising 20.8 percent this year, according to the latest central bank poll. Argentina does not publish countrywide inflation data, but consumer prices for the greater Buenos Aires area are used as a proxy. Macri revamped Indec after taking office in late 2015 due to widespread allegations of data manipulation by the previous administration. Indec resumed publishing inflation data in June.
In recent weeks, the central bank has warned that inflation in February would likely show an uptick from previous months due largely to increases in government-regulated prices. Core inflation, which excludes regulated and seasonal prices, was 1.8 percent in February, up from 1.3 percent in January. The increase in consumer prices was driven by an 8.4 percent increase in prices for housing and basic services, after the electricity price hike of between 60 and 90 percent for most consumers, announced in late January, began to kick in.
The central bank has kept interest rates steady since late November and will likely observe the impact of regulated price hikes on core inflation in future rate decisions, said Camilo Tiscornia, director of Buenos Aires consultancy C&T Asesores Economicos. "The central bank will wait a little bit, as core inflation at 1.8 percent is similar to previous months," Tiscornia said. He said the results of annual wage negotiations between unions and employers would also be key, as salary hikes above the central bank's inflation target could make it more difficult to meet the goal. Conflict between unions and Macri's government heated up this week, with workers striking in protest of job cuts and wages that have not kept up with inflation, which clocked in around 40 percent in 2016.