Each morning, the typical Argentine buys a newspaper, lights up a cigarette and then, while leafing through the pages and puffing away, grabs the telephone from its perch on the wall to make a call.
Well, this at least is what government statisticians in Buenos Aires would have you believe. Cigarettes, newspapers and landline phones remain key components of the country’s consumer price index today.
Which is why calls are getting louder for President Javier Milei’s government to redo the make-up of the index for the first time in two decades, tossing out obsolete items and adding new ones that have become everyday staples, like, for instance, the iPhone or Netflix subscriptions.
Most economists believe that a revamped index will reveal inflation is higher than the current monthly readings of about 2.5 percent. Several studies indicate that, and indexes compiled by cities and provinces consistently come in at higher rates than the national reading. Even the head of Argentina’s statistics institute, known as INDEC, acknowledged last year that the index needs changing. But, six months later, nothing has changed.
For Milei and his economic team, a refresh could spell trouble, especially ahead of midterm elections scheduled for October. On paper, his progress is remarkable: Annual inflation stood at 66.9 percent in February, down from 276.2 percent a year earlier, according to INDEC.
Thus, doing anything that could undermine his inflation victory — the main source of surprisingly resilient approval ratings — gives Milei pause. Besides, a new index could mean higher payouts on inflation-linked bonds, the government’s go-to source of financing.
In Argentina, where runaway inflation has been the norm for decades, people are naturally leery of official data in part due to a scandal a decade ago in which the government instructed INDEC officials to underreport consumer price increases. And as relieved as they may be by the recent slowdown in inflation, many of them believe prices are rising at a faster clip than INDEC data indicates.
“Inflation is going down, but prices keep rising,” says Ángel Santos, 66, a building superintendent in Buenos Aires.
Santos is feeling the squeeze on a personal level, with costs rising for pretty much everything he consumes: transportation, clothing, meat, eggs and dairy. “Some goods and construction materials have stabilised, but everything I need keeps going up,” he says. “And there are already medications I can’t afford.”
Despite Milei’s efforts to slash inflation, high prices remain a top concern for Argentines, according to a recent Atlas Intel poll. About 42 percent of respondents say inflation is the country’s biggest problem, indicating that the cost of living crisis is far from over.
Labour unions representing both public and private sector workers claim that “real” inflation is anywhere between 10 and 22 percentage points higher a year than the official numbers.
INDEC Director Marco Lavagna announced in September the basket would be updated two months later. “We are in the final stages of testing. We have to be very careful about when we make the changes,” Lavagna told local station Radio 10 at the time. “But it is not going to change that much.”
The Central de Trabajadores de la Argentina (Argentine Workers’ Central Union, or CTA), has come up with its own calculation, using the weighting of the last INDEC survey in 2017 but with different price information. According to that formula, the inflation rate should be 10 points higher than the official rate.
Another key issue is the underrepresentation of services in the basket. While food and utilities have a strong weighting in the index, the low share of essential services like private healthcare, education and digital subscriptions doesn’t accurately reflect spending patterns.
“There was an improvement in purchasing power from 2004 to the present that led Argentines to consume more services in relation to food,” says Mariana González, an economist and researcher at the CTA.
Rental properties, utilities, mobile phone service and public transport have outpaced the rise in food prices during the first 15 months of Milei’s tenure, but all four categories combined are weighted less than food prices in the index.
While prices for outdated items like tobacco and print newspapers roughly aligned with headline inflation at 69 percent in February, rental prices shot up 240 percent and Internet service costs jumped nearly 100 percent from a year ago, according to INDEC data.
Food is weighted more in the index than other services, which have outpaced the rise in grocery prices.
Lavagna’s plan to conduct a new household expenditure survey would have involved revising the methodology Argentina uses to measure inflation. The idea was to align the nation’s practices with those in other countries, with the IMF and the World Bank recommending to conduct these surveys every five years.
The INDEC chief, who didn’t respond to an interview request, pledged the new methodology would include around 500,000 prices, instead of 320,000 right now, and 24,000 informants. Lavagna also suggested a change in the sample structure and in the weighting of goods and services, with a focus on more current consumption habits.
However, the plan never moved forward. Analysts warn that without an updated basket, Argentina’s official inflation data will remain far from reality.
by Ignacio Olivera Doll, Bloomberg
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