UPDATE 2-Argentina's black market peso weakens past 11 per dollar

Wed Jan 15, 2014 2:22pm EST

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By Jorge Otaola

BUENOS AIRES Jan 15 (Reuters) - Argentina's black market peso weakened 2.67 percent on Wednesday to close at a record 11.25 per U.S. dollar, local foreign exchange traders said, driven down by high inflation and dwindling confidence in Latin America's No. 3 economy.

The country's official exchange rate meanwhile fell 0.7 percent to an all-time low of 6.7575 per greenback.

"The population is turning its back on the local currency," said Buenos Aires-based economic consultant Jorge Todesca. "All roads lead to the dollar."

Discredited official figures put inflation for full-year 2013 at 10.9 percent, while private economists say last year's rate was more like 25 percent. In December alone consumer prices rose 1.4 percent, the government announced on Wednesday.

In Latin America only Venezuela, with inflation of 56 percent last year, has a worse problem with consumer prices.

Argentine consumer prices will rise about 30 percent in 2014, according to a poll of five analysts on Tuesday, the highest rate since 2002 when millions in the middle class were pushed into poverty by a crisis punctuated by a sovereign bond default and 41 percent inflation.

Currently at $30 billion and falling, Argentine central bank reserves fell 30 percent in 2013.

Heavy currency and trade controls as well as the 2012 nationalization of top energy company YPF have taken a toll on confidence. The electricity grid, ailing from lack of investment, has failed in recent weeks to keep air conditioners going at the height of the southern hemisphere summer.

Such woes have hurt the popularity of President Cristina Fernandez, who has consistently downplayed the issue of inflation and refuses to tighten fiscal policy to confront it.

Signaling a continuation of her unorthodox policies, supermarkets last week froze prices in a deal with the government aimed at shielding poor families from one of the world's highest inflation rates.

The price freeze on 200 basic food products is to continue for one year.

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