Country Economic Forecasts > Argentina

For the first time in almost a decade, Indec has published inflation data generally regarded as accurate. In May the new CPI index increased by 4.2% on the month, pushed up by the removal of large subsidies on transport and utility costs. Looking ahead, we expect the annual inflation rate to decelerate to 35% by year-end from the current pace of 44% on the back of a contraction in private demand and a stronger currency though wage rises of more than 30% are likely to prevent inflation from falling further.A 90-page bill has recently been submitted to Congress that aims to tackle some of the key imbalances in the economy. The bill includes a mixed bag of fiscal reforms, affecting both pensions and the tax system. Some of the changes will result in higher revenues (temporary in some cases) and a likely reduction in permanent expenditure, such as the tax amnesty law, the selling of the equity held by the Social Security Agency and an increase in the retirement age (if approved), while others are more expansionary, including a reduction in the wealth tax and more generous arrangements for pensioners. The new administration is pressing on with implementing a business-friendly growth model, albeit the changes will take time to boost growth and the essential fiscal consolidation will dampen activity significantly in the short term.