Argentina 2017 inflation seen at 21.6 percent, above central bank target

BUENOS AIRES (Reuters) - Median inflation expectations for Argentina in 2017 held steady at 21.6 percent, unchanged from a month earlier and well above the central bank’s target range of 12 percent to 17 percent, a poll of 54 economists published by the bank showed on Tuesday.

A customer shops for groceries at a supermarket in Buenos Aires June 13, 2008. REUTERS/Enrique Marcarian

Latin America’s No. 3 economy is seen growing 2.7 percent this year, a tick above the 2.6 percent rate seen last month but below government expectations for growth of around 3 percent, according to the survey.

Argentina’s President Mauricio Macri is seeking to show signs that the economy is rebounding and that inflation - which totaled more than 40 percent last year - is under control ahead of mid-term elections in October that will help determine the fate of his open market reform agenda.

Cuts in subsidies for utilities like gas and electricity, necessary to reduce a wide fiscal deficit, have resulted in higher consumer prices. A weakening peso currency and wage hikes above the central bank’s target range also threaten to complicate the monetary authority’s goal.

On Tuesday, Buenos Aires province - Argentina’s largest - reached a deal with public school teachers’ unions to raise salaries by 24 percent in 2017, ending a months-long impasse.

When negotiations began in February, the deal the union would ultimately reach was seen as a benchmark for the rest of the public sector, meaning a pay hike well above inflation goals could embolden other unions to demand a similar deal.

But it has lost that bellwether status since many other sectors have already reached deals.

“The impact is reduced in this context given the delay,” said Federico Furiase, an economist with consultancy Estudio Bein & Asociados in Buenos Aires, adding that the fast-depreciating peso currency was now the most influential factor for inflation.

The teachers’ wage hike was similar to a 24.3 percent deal reached earlier this year by bank workers, seen as a reference for the private sector. Central bank President Federico Sturzenegger has said wage hikes “slightly above” the target inflation range would not jeopardize the goal.

The peso currency ARS=RASL fell 3.1 percent against the dollar during the month of June and on Tuesday fell to as low as 16.97 per dollar, a historic trough.

Reporting by Luc Cohen; Editing by Lisa Shumaker