06 March 2007

The incredible shrinking inflation

Remember the scandal about the inflation rate of January 2007? Well, the February rate has just come out: 0.3%. Needless to say, nobody believes it. Either the statistical sample is not representative, or the figure has simply been tweaked. Página/12's article, which I'm linking to, explains that both have happened in a way — to outrageous extremes. In some cases it's almost the case of one department of government telling shops to display certain prices so that another department records those prices, and not the real ones; in the case of tourism, it's literally one office asking another one what the prices are in their area of control, without actually checking reality at all. Less than a third of one percent is less monthly inflation than any other since 2004, and it's difficult to trust INDEC when so many things you buy almost every day seem to be so much more expensive. Is the government truly and so evidently manipulating the figures? That would be, as we say, peeing outside the can — a big stupid mistake.*

First of all, you can't enrage people more than they are already by presenting them with numbers that mean nothing. Less than 1% is simply not "true" for Doña Rosa.† Second, if you start rewriting reality like that, when will you stop? Third, and most importantly, regardless of whether this ridiculously low figure is real (no matter how twisted the method used to calculate it), trust has already been lost, and the Argentine State has already issued bonds indexed by inflation to refinance its debt. For every 1% of increase in the inflation rate, the government's debt increases by 1,500,000,000 pesos (about 500 million dollars); and the symbolic value of an index is one of those things that shortsighted politicians like Néstor Kirchner delight in.

Today I'm hearing in the radio (I'm having trouble finding the info online) that Merrill Lynch is offering "low inflation insurance": if you have an Argentine inflation-indexed bond and our annual inflation is less than 9.5% on average over the next five years, M-L will cover your losses. They may or may not believe that the rate reported by INDEC is fake, but that's not important for them or for financial speculators.

Speaking of speculators' fear, you probably heard that the Chinese government decided to cool their economy and stop short-term speculation, and screwed up the whole world's stock markets. Like Argentina, China is experiencing problems due to its fast growth. However, while Argentina may happily sink into the Atlantic Ocean with nobody else noticing, China is the engine of the world's economic growth, since its huge population is waking up to the joy of consumerism. If China stopped buying soybean completely (unlikely, but let's take an extreme case), Argentina would see its foreign trade surplus go down to zero, and its fiscal surplus would get a noticeable dent as well (because soybean exports pay taxes). Maybe we should ask the Chinese to send some of that growth our way, since we, unlike them, can handle it so well we're having less and less inflation every month.

Yeah, right.

* Mear fuera del tarro ("peeing outside the can"): doing something in a context where it's not appropriate at all to do it, such as offering an uninformed opinion in a delicate matter without being invited. You don't want to use the verb mear in a formal situation, but other than that, it's pretty harmless.

Doña Rosa: the lowest common denominator of public opinion; the lady next door who comments on every piece of news as she were an expert.


  1. I almost fell off my chair yesterday when I saw the posted 0.3% rate for February. I figured the government was trying to test the gullibility of the populace ...

    Pablo - are the individual items in the basket of goods and services that are used in computing the inflation index published by INDEC? Are they tabulated every month so that one can compare with one's own experience?

    One thing I did notice on several items I purchased at Easy last month, was that the posted price on the shelf was not reflected on what I paid at the register - it was sometimes 100% more ... Are there laws governing this?

    In California, if a store displays a product with a price label, they have to sell it to you at that price no matter what the SKU scan says on the cash register. And the store cannot refuse to sell the item at the shelf price. I wouldn't hesitate to force the issue in the US, but in BsAs I suspect I would be told not to purchase the item if I didn't want to pay the "new" price.



  2. In many places it's common that there's not a price tag, that the price is unreadable, or that it's plain wrong. I suspect it's on purpose only about 50% of the time (Hanlon's razor).

    I remember at least one occasion when I was shopping along with my mother and we noticed they were charging us a higher price. My mother made a scene and finally got her way. I'm not sure there's a law about it, but I believe (and that's the argument my mother used) that a price tag prominently displayed on a item should take precedence over the prices loaded in the computer.

    I don't see the items of the INDEC basket immediately available there, but I'll look. However, if you go to "Índices de precios" in the left sidebar, then "Precios al consumidor", then scroll down, the last section is a number of Excel sheets with info on the different types of goods and services (how they varied, how they're weighted in the calculated index, etc.).

  3. Thanks for your reply Pablo. I've tried navigating the INDEC site, but I usually run into difficulties locating specific information that's not embedded in some Excel spreadsheet. Not to mention my poor castellano ...

    I'd actually looked at the INDEC site last month after Ian and Cintra in their GoodAirs blog had mentioned that they thought the pregnancy rate in BsAs was high, but that was counted by an recent newspaper article. The newspaper article referenced an INDEC official but no data was given. For the life of me I couldn't find any data to support the contention that the birthrate in BsAs was as low as some of the European capitals that the newspaper cited. In fact all the internet references I could find came to a different conclusion ...



  4. Anonymous16:46

    Una pregunta, por que escribis en Ingles?

  5. Andrea: espero haber contestado tu pregunta en el post de hoy. La verdad, ¡lo tenía escrito hace como un mes y estaba esperando que alguien hiciera esa pregunta!


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