Argentina’s monthly inflation ticks up as Milei faces backlash over an outdated index

Inflation in Argentina accelerated more than expected for the fifth consecutive month in January, according to data released Tuesday by the country’s statistics agency, INDEC. Consumer prices rose 2.9% compared to December, primarily due to increases in food, restaurants, hotels, and utility bills.

The inflation report has become the center of political controversy in Argentina, creating significant challenges for libertarian President Javier Milei’s administration. Economic experts argue that the formula used by INDEC to calculate inflation rates substantially underestimates actual price increases, as it relies on consumption patterns from 2004 that no longer reflect current household spending.

“The old formula fails to capture how much Argentines spend on modern essentials like streaming subscriptions and smartphones,” said Camilo Tiscornia, director of Buenos Aires consultancy C&T Asesores Economicos and former central bank official. “It also underrepresents public services like healthcare and electricity that have seen dramatic price increases as Milei cuts subsidies.”

The Milei administration initially planned to implement a new, updated index for January’s inflation report. However, officials unexpectedly reversed course last week, announcing they would continue using the outdated methodology. This abrupt change triggered widespread concern among investors and the public, causing Argentina’s benchmark S&P Merval stock index to drop several percentage points.

The statistics agency’s respected national chief resigned following the decision, further amplifying concerns. “With this decision, a Pandora’s box was reopened,” noted Sergio Berensztein, who runs a political consultancy in Buenos Aires. “The economic team has no intention of repeating past mistakes, but the market, investors, and society have every right to be skeptical.”

In Argentina, a nation habituated to economic volatility, discussions about inflation methodology transcend technical considerations and enter everyday conversation. The controversy resurfaces traumatic memories of statistical manipulation under former President Cristina Fernández de Kirchner’s administration, when the government was accused of drastically understating inflation rates between 2007 and 2013.

During that period, technical staff at INDEC were dismissed and replaced with political appointees. Fernández’s government even threatened prosecution against independent economists publishing alternative inflation forecasts.

“INDEC was heavily manipulated for many years… I never trusted any of the data,” said Liliana Pastor, a 65-year-old pensioner in Buenos Aires. “We know that everything gets adjusted according to political needs.”

Analysts suggest the government’s decision to delay implementing the new methodology has caused more damage than potentially reporting higher inflation figures would have. “It prioritizes short-term goals over long-term credibility,” explained Marcelo J. García, Americas director at geopolitical risk firm Horizon Engage. “It gives the opposition ammunition to question the reliability of INDEC’s statistics and the government’s transparency.”

The controversy emerges as Argentines increasingly feel the burden of Milei’s harsh austerity measures without seeing corresponding benefits. Milei’s primary achievement—and the main source of his continued public support—has been reducing Argentina’s notoriously high inflation from over 211% annually in late 2023 to around 31% last year.

To combat inflation, Milei has implemented deep spending cuts, facilitated an influx of cheaper Chinese imports, and maintained a controversial exchange rate policy that kept the Argentine peso artificially stable against the dollar. However, after reaching a low of 1.5% last year, monthly inflation has steadily increased, highlighting the persistent challenges in Argentina’s economic stabilization.

Economic experts also point to growing concerns about wages failing to keep pace with inflation, significantly reducing purchasing power for average citizens. “Prices reflect what you can buy with your salary. It’s obvious that you can buy less than you could a couple years ago,” said Facundo Diaz, a 33-year-old graphic designer in Buenos Aires.

Looking ahead, further subsidy reductions and potential adjustments to foreign exchange policies could drive additional inflationary pressures. “Milei seems puzzled that his theoretical beliefs led him to expect sharp inflation decreases, but he’s confronting a different reality,” said Ignacio Labaqui, an analyst at Medley Global Advisors. “Most countries take six to eight years to transition from Argentina’s inflation levels to single digits.”

Despite the higher-than-expected January inflation rate representing a setback for Milei’s anti-inflation campaign, some experts expressed relief that the figure was high enough to dispel immediate concerns of statistical manipulation similar to previous administrations.