Argentines hedge against yet another inflation spiral

In a country long plagued by rampant inflation, Argentines are once again losing faith in the government’s ability to limit price growth.

The amount of money placed in mutual funds that invest in inflation-linked debt has leaped 40 percent in just 30 days, bringing the gain this year to 340 percent, far outstripping any other type of fund.

It’s a sign that the government’s extension of some price controls and a temporary ban on beef exports has failed to reassure people that the administration is getting on top of inflation. Far from it, in fact. Prices leaped rose four percent or more in three of the first four months this year, while the INDEC national statistics bureau is expected to report Wednesday that annual inflation accelerated to the fastest pace since February, 2020 in May.

“These inflation-linked funds are becoming the star of the market,” said Federico Diez, CEO of Quinquela Fondos in Buenos Aires. “The market expects inflation to be above the interest rate in pesos and the monthly peso depreciation.”

Currently, 23 mutual funds are investing in ten CPI-linked bonds, up from six funds investing in six such bonds last year. The government is selling more inflation-linked debt as demand rises.

For savers, it’s a bet that has paid off. The inflation-linked funds have returned 25 percent this year, compared with 11 percent for dollar-linked funds and 20 percent for peso fixed-income funds.

Prices in Argentina are expected to rise 50.2 percent over the next 12 months, according to the University of Torcuato di Tella’s monthly poll of citizens. It’s the highest average reading since the university began its survey in 2006. Inflation hasn’t fallen below 30 percent since June 2018.