Argentina CPI-linked bonds fall on possible change to basket

Argentina’s inflation-linked bonds fell Monday as the country’s statistics agency, INDEC, plans to modify the basket it uses to measure inflation.

Bloomberg News reported earlier on Monday that Indec is working to change the price basket it uses to measure inflation, according to a person with direct knowledge of the matter. The modifications, which seek to reflect changing consumption habits, are planned to take place in 2022, after this year’s legislative elections, to avoid political conflicts of interest.

Prices of the country’s inflation-linked discount bonds due 2033 fell 2.4 percent and Boncer bonds due 2026 fell 2.4 percent at the market close.

“The news of a possible change in the composition of the CPI portfolio in 2022 is very bad for the entire CPI curve,” said Pedro Siaba Serrate, a fixed income strategist at Portfolio Personal Inversiones in Buenos Aires. “The market consensus assumes that this modification would be biased toward trying to minimise or smooth the price dynamics.”

The analyst concerns stem from a history of meddling with local price indexes under the presidency of Cristina Fernández de Kirchner. Argentina was censured by the IMF in 2013 for failing to disclose economic data, but the fund removed the censure declaration in 2016 after a new government improved its transparency. Fernández de Kirchner is now Argentina’s vice-president as part of the current ruling Peronist coalition, Frente de Todos.

An INDEC spokesperson confirmed that the body is working to determine new CPI baskets, but that the idea is to do so in the medium term without a set date. A change in the basket would also lead to a change in the base year for inflation, the spokesperson added. An Economy Ministry spokesman declined to comment.

Inflation was nearly 40 percent in 2020 and is expected to end the year at around 50 percent, according to a survey of economists organised by the Central Bank.

The government had been leaning on sales of inflation-linked bonds to rollover its local bond payments and should look to clarify that the move is part of a natural process to bring its price basket up to date and remove concerns of a possible manipulation, according to Buenos Aires-based consulting firm Eco Go.

“It’s crucial that the government clarifies this situation as soon as possible,” said Federico Furiase, director of Eco Go. “Once the market settles, there will be a buying opportunity because this update is a normal part of the evolution of an index and does not imply a risk of manipulation.”