The controversy over the new CPI revives, an indicator that could alter the path of inflation deceleration

Just as anticipated Scopethe process of making the new consumer price index (CPI) is finishedalthough the government of Javier Milei continues to delay its publication. The decision is clear, the libertarian administration has as one of its achievements the strong inflation slowdown and it is not willing to lose it by innovating in a measurement that, if done, could give it a higher rating. Looking ahead to the election year, the President still maintains a strong positive image and an acceleration of that indicator, As a result of the use of a new measurement system, it could work against you.

The controversy was revived after an explanation by the economist from Di Tella University, Martin Gonzalez Rosadawho slipped that inflation in 2024 would have been 16 percentage points (pp) above the currentwhich closed in 117.8%according to the National Institute of Statistics and Censuses (INDEC). This implies that the CPI would be closer to 134%, based on the 2018 Household Survey (reference taken by the new index).

To date, the official body measures the inflation based on the Household Survey 2004-2005 by decision of the Government, since the statistical institute is under the orbit of the Executive. “Not updating it is a political decision”said a senior source.

Why do we have to change the CPI methodology?

The consumption basket measurement is updated periodically due to changes in populations. Argentina went from having 38 million inhabitants to 47 million, although consumption also changed, mainly due to the impact of new technologies on daily life. The main problem with the index made based on the 2004 survey is that it does not correctly weight the weight that services have. (public and private – such as electricity, gas, water, internet, telephone, etc.) in the basket.

So much so, that the INDEC released an interactive tool so that each person can calculate monthly inflation, amidst comments that the index does not reflect the increase in prices that families observe in the economy. “Why doesn’t the consumer price index reflect the price increases of my consumption?” we often hear.he acknowledged statistical institute when he launched the tool.

“The cost of living contains subjective elements that arise from how the consumer adapts his personal basket of expenses to satisfy his needs and maintain a certain level of well-being,” the institute had excused itself. However, both data are correct, since this is a problem of outdatedness and not index manipulation.

Impact of the CPI update on different variables

The CPI slowdown It impacts, not only on people’s vision of the direction of the economy, but also on particular items that are updated in line with it. In the last year, the most controversial item that is updated in line with the index of inflation was that of retirements and pensions.

At the same time, having an index based on an old basket and with old weights also makes it almost impossible to measure the purchasing power of the wages in relation to the inflation.

He new CPI has the endorsement of the International Monetary Fund (IMF)which recommends updating it every five years. At the end of October, a technical representative of the multilateral organization, Brian Graf, met with the head of INDEC, Marco Lavagna. After that meeting, the official warned that by the end of 2024 the reformulated index would be closed.

However, the new methodology, so far, has not been published by order of the Executive, as this media anticipated in November. At the moment, there is also no political decision to update the inflation measurement, since it would not correspond to the official expectation.