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Currency stability and managed prices contain
inflation
Consumer prices rose 2.3% in August, which was down from the 3.2% monthly
increase experienced in July. The August increase was below market
expectations but raised the annual inflation rate from 32.9% in July to
36.5%. Goods prices in total experienced a 2.9% monthly increase, which
was only modestly offset by the more moderate 1.4% increase in service
prices. Uncertainty over the trajectory of the currency and public service
tariffs continues to cloud prospects for any moderation in the current
pace of consumer price increases. In fact, wholesale price developments
indicate that inflation may accelerate at a more rapid pace in the coming
months. Monthly wholesale prices rose 4.7% in August, which was up from
the 4.6% monthly increase registered in July. As a result, the annual
wholesale price variation rose to 107.7% from 97.3%% in July. Participants
expect inflationary pressures to persist through the end of the year with
the consumer price variation rising further. However, panellists appear to
have become more optimistic about the inflationary outlook, as this
month’s forecast is 18.2 percentage points below last month. Furthermore,
in line with greater currency stability, inflation is anticipated to
moderate further next year with the annual increase in consumer prices
slowing.
Economy not emerging from slump as political
gridlock stifles advances on economic front
Recent data releases indicate that economic activity continues depressed
in the third quarter. According to the National Statistical Institute (INDEC),
the recession in industry persists, as the annual contraction deteriorated
further from 14.2% in June to 14.8% in July. Similarly, construction
output slowed further in July with annual construction activity declining
37.2% over the same month last year, down from the 36.0% drop in June. The
construction sector and industry continue to labour under severe financing
constraints, a deteriorating currency and overly tight credit conditions.
According to the Central Bank, non-private sector loans were down 31.5% in
July over the same month last year – a further deterioration when compared
with the 30.9% decrease observed in June. Furthermore, loan rates for
prime segment private sector borrowers remained prohibitively high at
90.5%. Finally, the general index of activity (IGA, Índice General de
Actividad) elaborated by Orlando J. Ferreres & Asociados S.A. – a proxy
for gross domestic product (GDP) growth – substantiates a further
deepening of the recession in July. The IGA dropped 13.5% in July over the
same month last year, which was down from an 11.5% decline observed in the
previous month for the same period.
Panellists expect economic activity to remain in deep recession in the
third quarter with GDP contracting sharply. The dire economic picture of
the first nine months will drag down the annual decline in economic
activity. Signs of recovery will remain absent until well into the second
quarter of next year, when the economy is anticipated to enter positive
territory for the first time since the third quarter of 1998. Positive
growth throughout the remainder of the year will help lift the annual
growth rate for 2003.
Presidential primaries rescheduled
A federal judge forced authorities to reschedule the presidential
primaries to be held originally on 24 November. The court ruled that the
voting system proposed by the decree signed by President Duhalde on 1 July
was unconstitutional in allowing non-party members to participate in the
primaries. Authorities were forced to rewrite the voter participation
clause and reschedule the primaries for 15 December.
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