Argentine Peso Yields Surge on Inflation Manipulation Concern

Argentine inflation-linked peso bond tumbled, pushing yields to their biggest two-day increase since July, on concern the government sought to manipulate price data released yesterday.

The yield on Argentina’s 5.83 percent inflation-linked bonds due in 2033 rose 6 basis points, or 0.06 percentage point, at 5.42 percent at 11 a.m. in New York, according to Banco Mariva in Buenos Aires. The bonds closed at 5.31 percent on Feb. 2. Yields move in the opposite direction of prices.

Argentina yesterday said consumer prices in January increased 1.1 percent, the biggest gain since March, when they rose 1.2 percent. The government last week appointed Beatriz Paglieri, an aide to Economy Minister Felisa Miceli, to head the office that measures inflation at the National Statistics Institute. The data was in line with a Bloomberg median estimate of 12 analysts.

Employees at the statistics institute may go on strike after the newly appointed director prevented them from finishing the January measurements according to the usual practices, said Daniel Fazio, the representative of the largest employee union at the institute.

"The institute has been intervened, which is why we will stay on alert and decide on a course of action today that may include a strike,"Fazio said in an interview.

Economist Jose Luis Espert, who heads Espert & Asoc. economic research organization, said the government may have trimmed about 1 percentage point from the consumer index by underestimating the impact of price rises in tourism and private medicine.

Investor Trust

"Investors holding an inflation-linked bond won’t be able to trust the inflation index anymore,"Espert said. “The government has cut in half the January inflation."

A rise in inflation drives up the value of the principal on the government’s inflation-linked bond.

Lowering inflation has been a cornerstone of Argentina President Nestor Kirchner’s economic policy after consumer prices doubled to 12.3 percent in 2005 from the previous year. The government last year imposed price controls on hundreds of products to lower inflation and banned beef exports when neat prices failed to fall.

About 40 percent of Argentina’s total debt is linked to inflation, increasing government payments when inflation rises. Also, wage increases in all major industries are tied to the inflation index.

`Little Transparency’

The statistics institute yesterday released the inflation data three hours late without an explanation.

"The way things were handled is very negative for the country," said Rodrigo Alvarez, an economist at Ecolatina, a research company in Buenos Aires. "There was little transparency, and that gave room to plenty of justified suspicion."

Paglieri replaced Graciela Bevacqua after she declined to modify the methodology used to measure the consumer price index, Clarin, an Argentine newspaper, reported last week, without saying how it got the information.

"The methodology by which the government measures inflation will not be altered," Silvio Robles, an Economy Ministry spokesman, told Bloomberg News last week.

Argentina’s peso was little changed at 3.1030 pesos per dollar from 3.1030 yesterday.

Picture of José Luis Espert

José Luis Espert

Doctor en Economía

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