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Tariff increase likely to raise inflationary
pressures but not notably
In November, consumer prices rose 0.51%. The November figure raised the
annual inflation rate to 40.6%, up from 39.4% in October. Consistent
with the trend observed throughout this year, wholesale prices continued
to remain much higher than consumer prices, which indicates inflation
pressures remain. In November, monthly wholesale prices declined 1.7% in
May, the first decline in prices since December 2001. The November
figure was down substantially from the 0.5% monthly increase registered
in October. As a result, the annual wholesale price increase dropped to
118.3% from 119.0% in October. The combination of depressed domestic
demand and the subdued government decreed public service tariff hike
promise to keep a more rapid acceleration of consumer prices at bay.
Consequently, participants have again revised their inflation
projections for this year downward to 45.7%, which is down 4.3
percentage points from last month. Similarly, consumer price increases
are anticipated to remain below this year’s increase in 2003, despite
the pick up in economic activity. Panellists expect the annual inflation
rate to moderate from this year to 38.0%, which is up 0.9 percentage
points from last month.
Recession bottomed out
According to the National Statistical Institute’s (INDEC) new monthly
indicator for economic activity (Estimador Mensual de Actividad
Económica, IMAE), the economic recession is likely to have reached its
trough at the end of the second quarter. In September, the IMAE volume
index (IVF, Indíce de volumen físico) declined 8.0% over the same month
last year. The September figure represented an improvement over the
11.4% economic contraction experienced in August.
More recent economic indicators confirm the notion that the devastating
recession the country has been going through is finally drawing to an
end. Industrial production in October was down 4.0% over the same month
last year, which was an improvement from the 7.0% observed in the
previous month. Similarly, supermarket sales continue on their upward
trajectory. In October, supermarket sales rose 23.5% over the same month
last year, which was up from 18.4% in the previous month.
Participants expect the current deceleration in the contraction of
economic activity to continue through the end of the year. Nevertheless,
annual growth is unlikely to benefit significantly, with the contraction
in economic activity for this year anticipated to reach 12.2%, which is
unchanged from last month. Forecasts for next year have been lifted
substantially in this month’s edition, with participants now
anticipating the economy to remain in recession through the first
quarter but to rebound quickly throughout the year with annual growth
reaching 1.9%, which is up 1.3 percentage points from last month.
Central Bank president resigns amid differences
with Economy Minister
On 5 December, Central Bank president Aldo Pignanelli submitted his
resignation. Pignanelli’s decision purportedly resulted from differences
with Economy Minister Roberto Lavagna over negotiations with the
International Monetary Fund (IMF). President Duhalde will decide whether
to accept the resignation upon returning from a trip to neighbouring
Brazil. Pignanelli has been considered very effective by markets in his
management of monetary policy and stabilizing the exchange rate.
Furthermore, his resignation may undermine confidence in the currency.
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