CPI Credibility Lasts 34 Days as Doubts Return: Argentina Credit

By Charlie Devereux  Mar 20, 2014

It took just 34 days for investors to start doubting Argentina’s inflation statistics after the nation unveiled a revamped consumer price index intended to quell concerns over the accuracy of its data.

Flanked by two officials who have worked at the country’s statistics agency since its data began being questioned in 2007, Economy Minister Axel Kicillof said at a press conference March 17 that consumer prices rose 3.4 percent in February.
That was less than the 4.3 percent estimate of private economists, whose readings have been published by opposition lawmakers since the government began fining them in 2011.

The announcement is rekindling concern that Argentina is underreporting inflation a month after it started the new index that showed consumer prices were rising twice as fast as it had previously stated.
The nation’s inflation-linked bonds due 2033 have lost 3.1 percent since March 17, versus an average 0.3 percent gain for similar debt from emerging markets tracked by Barclays Plc.
Ana Maria Edwin and Norberto Itzcovich, the two officials who attended the briefing, were appointed by then-president President Nestor Kirchner and his wife and successor, President Cristina Fernandez de Kirchner, to overhaul the agency.

“In another context, this disparity could easily be explained by methodological differences,” Fausto Spotorno, chief economist at research firm Orlando Ferreres y Asociado, said in a telephone interview from Buenos Aires. “But combined with the fact we had the two directors we’ve always had -- that’s where my suspicions are alerted.”

‘Thin Air’

Argentine Economy Ministry spokeswoman Jesica Rey didn’t reply to a phone call and e-mail seeking comment about the veracity of the new index.

Kicillof, the only official to speak during the briefing, spent an hour criticizing the inflation readings and methodology of private economists before announcing the official number.

“No one knows what products they measure and in which businesses they are measured,” he said of private surveys. “The figures they publish are plucked out of thin air.”

Fernandez released the current index on Feb. 13 after Argentina became the first nation to be censured by the International Monetary Fund for manipulating data last year. The move came after she devalued the peso by 19 percent in January, the most in 12 years, to help stem a plunge in foreign reserves the government uses to pay debt.

‘Bad Number’

“When there’s a devaluation, you usually get a pass-through of prices, and that should have been reflected in February’s numbers,” Hernan Yellati, head of research at BancTrust & Co., said in a telephone interview from New York. “This is a bad number in terms of credibility.”

Argentina’s cost-of-living data is closer to reality than before and won’t jeopardize the government’s attempt to repair relations with creditors, said Alejandro Urbina, a money manager at Chicago-based Silva Capital Management LLC, which oversees $800 million including Argentine inflation-linked bonds.

Seeking to regain access to overseas debt markets since its record $95 billion default in 2001, Argentina agreed on Oct. 18 to pay five companies the $677 million they were claiming through the World Bank’s arbitration court.

Last month, the government reached an agreement to compensate Madrid-based Repsol SA for Argentina’s seizure of its YPF SA unit, ending a two-year dispute.

‘It’s Progress’

The extra yield investors demand to hold Argentine government debt over U.S. Treasuries fell 10 basis points to 863 basis points at 11:16 a.m. in Buenos Aires, according to JPMorgan Chase & Co.’s EMBI Global diversified index.

“Holding the bonds today I feel better than I did six months ago,” Urbina said in a telephone interview. “Should the number have been higher? Yes, probably. But it’s progress from where we were.”

Argentina’s inflation-linked bonds, which the government tied to the new index, soared 3.5 percent on Feb. 14, the day after the government published the current index, data compiled by Bloomberg show. The 3.4 percent jump in consumer prices reported by the government was also below the 3.8 percent median estimate of eight analysts surveyed by Bloomberg.

ACM Consultores’ Maximiliano Castillo, the only economist with a lower estimate than the government’s figure, said his 3.2 percent projection reflected concern that Argentina would once again start underreporting consumer prices.

Doubts Already

Since publishing the index, the statistics agency hasn’t published average prices for certain goods, nor has it reported price increases for each province, which raises speculation Argentina is giving itself a margin for discretion, he said.

“If that’s the real number then show it to me,” Castillo said in telephone interview from Buenos Aires, referring to the official data.

Based on estimates private economists published by opposition lawmakers, living expenses surged 34.9 percent in the year ended February and will increase 40 percent in the coming year. The government isn’t reporting an annual figure because the index is new.

“It seems that already in the second month there are doubts,” Jose Luis Espert, who runs research firm Espert & Asociados, said by telephone from Buenos Aires.

To contact the reporter on this story: Charlie Devereux in Buenos Aires at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net Lester Pimentel, Bradley Keoun