BUENOS AIRES, Argentina (AP) — Inflation in crisis-prone Argentina accelerated more than expected and for a fifth straight month in January, the country’s statistics agency said Tuesday, a closely watched report whose outdated methodology in recent days stoked political turmoil and created a headache for libertarian President Javier Milei.
Consumer prices rose 2.9% last month compared with December, the statistics agency known by its Spanish acronym
INDEC reported, largely owing to increases in the prices of food, restaurants, hotels and utility bills.
Even so, economists say that the formula that INDEC used to calculate the inflation rate underestimates real price rises in a country reeling from massive budget cuts and deregulation measures under Milei, a close ideological ally of U.S. President Donald Trump who has championed his program as a model for downsizing federal bureaucracy.
After months of mounting pressure, Milei's government said it would revamp the index used in the official inflation reports, which is currently based on consumption habits from 2004. It reads like a time capsule: Cigarettes, newspapers, DVDs and landline phones are considered key to the “basket” of goods and services consumed by the population.
Not only does the formula fail to reflect how much Argentines spend on present-day staples like Netflix subscriptions and iPhones, experts say, it also assigns less importance to the cost of public services like electricity that have skyrocketed as Milei slashes generous subsidies.
“It is very likely that the regulated public service prices in Argentina will see a strong increase this year, and this new methodology for measuring inflation will give those increases a lot more weight," said Camilo Tiscornia, director of Buenos Aires consultancy C&T Asesores Economicos and a former central bank official.
“The government is engaged in a fight against inflation, so this index didn't help.”
The government was expected to apply the new index for the first time in Tuesday's report.
But last week, officials backtracked and announced that INDEC would press on using the old formula.
The move, reviving memories of blatant tampering with inflation statistics by past populist governments, prompted the country’s widely respected national statistics chief to resign last week, sent Argentina’s benchmark S&P Merval stock index sliding several percentage points, and rattled investor confidence and public trust.
“With this decision, a Pandora’s box was reopened,” said Sergio Berensztein, who runs a political consultancy in Buenos Aires. “I know the officials of the economic team, they are in no way going to repeat the mistakes of the past. But the public, the market, investors, society, have every right to distrust.”
Elsewhere in the world, perhaps such a technical-sounding government decision would fall to the domain of data wonks and financial consultants. But it was the talk of the town in Argentina, a nation of amateur economists weaned on years of uncontrolled inflation and violent exchange rate volatility.
“It generated a lot of questions, these controversies aren't ever good for public opinion," said Ana Stupi, a 58-year-old lawyer shopping in downtown Buenos Aires on Tuesday. “I hope that everything can be transparent so that this economic stabilization continues.”
Under former President Cristina Fernández de Kirchner, who succeeded her husband Néstor Kirchner in November 2007, Argentina was accused of doctoring data to make inflation seem only a fraction as high as it really was.
Between 2007 and 2013, the government fired technical staff at INDEC and packed the agency with political allies to conceal a mounting crisis. Fernández's government even deployed fines and threats of prosecution to muzzle independent estimates of inflation numbers.
“INDEC was heavily manipulated for many years ... I never trusted any of the data," said Liliana Pastor, 65. “We know that everything like that gets adjusted according to political needs.”
Experts say the decision to delay use of the new index did far more damage than whatever the publication of a higher inflation rate could.
“It puts a short-term goal ahead of a long-term strategy,” said Marcelo J. García, Americas director at geopolitical risk firm Horizon Engage. "It gives the opposition an opening to criticize more substantially the credibility of the numbers that INDEC is producing and therefore question the credibility of the government.”
The controversy further soured the national mood as Argentines increasingly lament that they’re absorbing all of the pain of Milei’s program and few of its benefits.
The main benefit so far — and the factor most responsible for Milei’s glow of public approval — has been the government’s rapid reduction of Argentina’s notoriously high inflation, from over 211% annually in late 2023, when the radical libertarian leader took office, to 31% last year.
Few dispute the importance of his achievement. But many question its sustainability.
To bring down inflation, Milei has so far relied on deep spending cuts, an influx of cheap Chinese imports and a controversial exchange rate scheme that kept the Argentine peso stable against the dollar, leading some economists to consider it overvalued and making shopping sprees abroad inordinately cheap for well-heeled Argentines.
But after hitting a low of 1.5% last year, monthly inflation has more recently ticked up, reflecting the challenges Milei faces in preserving his main political accomplishment. Concern is also growing over how stagnant salaries have lagged behind inflation, shriveling in value.
“At the end of the day, prices are about what you can buy with your salary. And here and now, it’s obvious that you can buy less than you did a couple years ago," said Facundo Diaz, a 33-year-old graphic designer.
In the coming months, further subsidy cuts risk fueling higher inflation, as does a looser foreign exchange policy imposed last month that allows the peso to move more freely in the currency market.
“Milei seems sort of puzzled by the fact that his theoretical beliefs led him to expect inflation to go down sharply and he’s facing a different reality that calls that into question,” said Ignacio Labaqui, a Buenos Aires-based senior analyst at risk consultancy Medley Global Advisors.
“But the truth is it takes most countries between six to eight years to go from the levels of inflation that Argentina had to single-digit.”
Although Tuesday’s higher-than-expected rate dealt a blow to Milei’s war against the country’s chronic price pressures, some experts expressed relief.
In outpacing even most private-sector calculations, the INDEC inflation figure published Tuesday at least temporarily dispelled concerns that the government was cooking the books in any way comparable to his predecessors.
“Fortunately, January’s inflation was high enough that nobody can really say that the index was manipulated,” Berensztein said. “If the figure had been 1.2% or 2%, it would not have been credible.”
