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ECONOMY | 14-06-2022 18:08

Argentina’s annual inflation rate reaches 61% as investors worry

Price gains reach almost 61% in annual terms as investors worry about the government’s ability to pay its local debt.

Argentina’s monthly inflation slowed slightly more than expected in May, with price gains reaching almost 61 percent in annual terms as investors worry about the government’s ability to pay its local debt.

Consumer prices rose 5.1 percent last month from April, just below a 5.2 percent median estimate of economists surveyed by Bloomberg. From a year ago, inflation climbed to 60.7 percent, a new 30-year high, according to government data published Tuesday. 

Health costs shot up 6.2 percent from the previous month. Transport, clothing and shoes, and restaurants and hotels were also categories that rose above the headline figure. 

Argentina is facing one of the world’s more damaging inflation spikes, and the Central Bank is very likely to boost the key interest rate this week in response to the price increases. The government has been focusing its efforts on curbing inflation through price freezes.

High inflation has also rattled investors, who are increasingly concerned that the government can pay its inflation-linked peso bonds, which make up about 80 percent of the government’s local debt obligations. So far in June, investors have withdrawn 10 percent of total inflation-linked assets, the biggest drop on record. 

Economy Minister Martín Guzmán has emphatically stated the government will always pay its peso-denominated debt. A new government debt auction Tuesday will likely test market appetite after last week’s sell-off. 

The jitters also follow the International Monetary Fund’s first review of its US$44-billion programme with the country. The IMF said the path to achieving its year-end targets, such as its fiscal deficit and reserve accumulation, may shift due to the impact of Russia’s invasion of Ukraine. 

Economists surveyed by the Central Bank forecast inflation ending this year at nearly 73 percent. 

by Patrick Gillespie, Bloomberg

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