Argentina Inflation Battle Jolts Confidence in Milei’s Overhaul
INDEC chief resigns amid dispute over updating the inflation index. Delay raises investor concern and revives fears of statistical manipulation. Economists say the current CPI understates inflation due to outdated weights. Milei’s political capital depends on visibly falling inflation. Caputo says the update will come once inflation is “fully” slowing. Current basket is based on a ~20-year-old household spending survey. Private estimates suggest only a small backward impact (≈ +1 pp last year). But tariff hikes in utilities/energy could widen the gap going forward. IMF and economists have pushed for the update since late 2023. Markets reacted negatively (Merval down ~8%); focus is now on official vs private divergence. “What this means for investors” (~1 page implications by me) This is less a technical argument about measurement and more a test of institutional credibility. In a stabilization program like Milei’s, inflation is the scoreboard used to judge whether the medicine is working. When the government delays a widely expected methodological update—one that economists and the IMF have urged—it can be read as a signal that political objectives may be taking precedence over transparent measurement. The key point is that the current index is not “making up” prices: it uses real prices but combines them using older consumption weights. That can create a systematic bias. If households now spend more on services, utilities, transport and housing than they did two decades ago, and the index does not reflect that shift, then official CPI will tend to “feel” certain increases less. That’s why the article suggests the change might not materially rewrite recent history, yet could matter far more going forward—especially if regulated tariffs rise. For investors, the main risk is not a decimal point in CPI but a growing gap between the official measure and private estimates. As that divergence widens, expectations become harder to anchor: wage negotiations, contracts, rents, inflation-linked debt and price-setting all become noisier. Risk premia rise because markets fear a return to a familiar Argentine pattern—“adjusting” statistics to reduce fiscal or political costs. The reported market reaction fits that logic. If trust in statistics erodes, financing costs can rise, and the stabilization narrative becomes more fragile. In short, the resignation and the delayed CPI update act as a signal. If the government publishes a clear timeline and implements the change with transparent rules, the damage may be contained; if postponements continue and the gap with private measures widens, reputational costs can accumulate and weigh on assets, the currency and inflation expectations.
www.wsj.com
