Analysis: Argentine inflation "resilient" despite slowing growth

Fri Aug 10, 2012 4:04pm EDT
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By Hilary Burke

BUENOS AIRES (Reuters) - Argentine dairy farmers dumped truckloads of milk in protests this week while millions of commuters endured the longest subway workers strike in history, all thanks to high inflation that is not seen easing despite a sharp economic slowdown.

The government shuns orthodox policies and spends heavily to stoke swift economic growth. Official data has drastically lowballed price rises since 2007 and President Cristina Fernandez avoids mentioning inflation, estimated at 20 percent to 25 percent a year - the highest rate in Latin America.

Her government has fined and even sued economists who publicize their inflation estimates, which tend to double or triple the official figure.

Dairy farmers are protesting to push for higher milk prices since they say they operate at a loss due to surging costs. Striking Buenos Aires subway workers initially demanded a 28 percent salary increase, along with better benefits.

"The cost of energy, fuel, veterinary products, feed - everything's risen," said Gustavo Colombero, the head of a dairy farmers' association in Santa Fe province. "Smaller producers are on the verge of shutting down. Some people are already planning to auction off their herds and call it quits."

In most of the last nine years, Argentina's economy boomed at China-like rates. In 2012, however, increasingly pessimistic analysts are forecasting low growth or even a contraction.

When the economy screeched to a halt during the 2009 global crisis, inflation dropped along with demand. But this year it is not expected to budge due to high state spending, loose monetary policy, wage hikes, the impact of currency and import controls, unreliable data - and inertia.

Some economists say the country is already suffering from stagflation - stagnant growth and high inflation - while others dismiss that possibility because they foresee an economic rebound in the second half of the year and 2013.   Continued...

A man walks past an electronic board showing currency exchange rates and an Argentine flag at a money exchange in Buenos Aires, June 1, 2012. REUTERS/Marcos Brindicci