VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #0912/01 1141106
ZNR UUUUU ZZH
R 241106Z APR 06
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 4262
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 2151
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 5486
RUEHMN/AMEMBASSY MONTEVIDEO 5494
RUEHSG/AMEMBASSY SANTIAGO 5082
RUEHBR/AMEMBASSY BRASILIA 5288
RUEHSO/AMCONSUL SAO PAULO 2864
RUEHRI/AMCONSUL RIO DE JANEIRO 1956

UNCLAS BUENOS AIRES 000912 
 
SIPDIS 
 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI 
PASS USTR FOR LESLIE YANG 
TREASURY FOR RAMIN TOLOUI AND CHRIS KUSHLIS AND OCC 
FOR CARLOS HERNANDEZ 
USDOC FOR ALEXANDER PREACHER 
USDOL FOR ILAB PAULA CHURCH AND ROBERT WHOLEY 
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ELAB ETRD ALOWAR
SUBJECT: MARCH 2006 INFLATION UPDATE AND PREDICTIONS 
 
REF: BUENOS AIRES 852 
 
------- 
SUMMARY 
------- 
 
¶1.  The Consumer Price Index (CPI) rose 1.2 percent in 
March.  This brings the 12-month inflation rate to 
11.1 percent.  Clothing, Education, and Food and 
Beverages were the three CPI components with the 
highest monthly price rises in March, increasing 9.5 
percent, 6.1 percent and 1.5 percent, respectively. 
Average nominal salaries increased 1.0 percent in 
February and the purchasing power of salaried workers 
in February 2006 was 4.7 percent higher than in 
February 2005.  Official surveys put the percentage of 
people living below the poverty line at 33.8 percent 
in the second half of 2005, down from 38.5 percent in 
the previous semester.  The percentage of people 
living below the destitution level declined to 12.2 
percent during the second half of 2005, down from 13.6 
percent in the previous semester.  However, the peso 
value of the poverty line and the destitution line 
grew 1.3 percent and 1.7 respectively, in March. 
According to the Central Bank's survey of market 
expectations, CPI inflation is expected to be 0.8 
percent in April, and 12.4 percent in 2006.  End 
Summary. 
 
------------------------ 
THE CONSUMER PRICE INDEX 
------------------------ 
 
¶2.  The official Consumer Price Index (CPI) was 1.2 
percent higher in March 2006 than in February 2006, as 
predicted by the Central Bank's (BCRA) consensus 
forecast.  March inflation brought 12-month inflation 
to 11.1 percent.  Prices of Goods increased 1.7 
percent and Prices of Services increased 0.5 percent 
in March.  Prices of goods that change depending on 
the season decreased a monthly 0.5 percent, regulated 
prices increased 0.2 percent, and the rest, which 
constitutes "core inflation," increased 1.7 percent in 
March.  Core inflation was 12.5 percent between March 
2005 and March 2006.  The official CPI measures 
inflation only in the Greater Buenos Aires urban area. 
 
¶3.  Clothing, Education, and Food and Beverages were 
the three CPI components with the highest monthly 
price rises in March, increasing 9.5 percent, 6.1 
percent and 1.5 percent, respectively.  Education was 
the CPI component that increased the most between 
March 2005 and March 2006, posting a 20.0 percent 
increase.  It was followed by Food and Beverages, 
which rose 13.7 percent, and Clothing, which increased 
12.6 percent. 
 
TABLE I 
CONSUMER PRICE INDEX (1999 = 100) 
 
          CPI PCT CHG       CORE INFLATION 
YEAR         PREV YR             PCT CH PREV YR 
 
2001          -1.5                n.a. 
2002          41.0                n.a. 
2003           3.7                n.a. 
2004           6.1                 6.4 
2005          12.3                14.2 
 
           CPI PCT CHG      CORE INFLATION 
             PREV MO             PCT CH PREV MO 
 
2005 
JAN            1.5                 1.1 
FEB            1.0                 1.3 
MAR            1.5                 2.2 
APR            0.5                 0.8 
MAY            0.6                 0.6 
JUN            0.9                 1.1 
JUL            1.0                 1.0 
AUG            0.4                 0.9 
SEP            1.2                 0.9 
OCT            0.8                 0.7 
NOV            1.2                 1.4 
DEC            1.1                 1.4 
 
2006 
JAN            1.3                 0.7 
FEB            0.4                 0.7 
MAR            1.2                 1.7 
 
Source: National Bureau of Statistics and Census 
(INDEC). 
 
------------------------------ 
POVERTY AND DESTITUTION LEVELS 
------------------------------ 
 
¶4.  INDEC publishes a monthly estimate of the value of 
a "total consumption basket" and a "food consumption 
basket."  These baskets are based on estimates of the 
minimum nutritional requirements and other consumption 
habits of people of different ages.  These estimates 
determine the official poverty line and the official 
destitution line, respectively.  For a family of four 
in March, the poverty line was ARP 859.95 (USD 280) 
and the destitution line was 
ARP 399.97 (USD 130).  A family of four is defined as 
a man and a woman in their thirties, an eight-year-old 
girl and a five-year-old boy. 
 
¶5.  The peso value of the poverty line grew 1.3 
percent in March, and rose 11.3 percent in the March 
2005 - March 2006 period.  The peso value of the 
destitution line increased 1.8 percent in March, and 
rose 12.8 percent in the March 2005-March 2006 period. 
Thus, prices for essential food items consumed by the 
poor increased more rapidly than for other items, 
despite the GOA's increasing efforts to control food 
prices. 
 
¶6.  The percentage of people living below the poverty 
line was 33.8 percent in the 28 most important urban 
areas of Argentina in the second half of 2005.  The 
percentage of the poor was 38.5 in the first half of 
2005, and 40.2 percent in the second half of 2004. 
The percentage of people living below the destitution 
line was 12.2 percent in the 28 most important urban 
areas in the second half of 2005.  The percentage of 
the destitute was 13.8 percent in the first half of 
2005, and 15.0 percent in the second half of 2004. 
The Embassy expects poverty and destitution to 
continue to decline in 2006, but at an ever-decreasing 
rate (see reftel). 
 
------------------------ 
AVERAGE NOMINAL SALARIES 
------------------------ 
 
¶7.  INDEC estimated that average nominal salaries 
increased 1.0 percent in February 2006 over January 
¶2005.  Inflation was 0.7 percent during that period. 
The average nominal salary increase in February was 
due to increases of 1.4 and 0.8 in formal and informal 
private sector salaries, respectively, and no changes 
in public sector salaries.  Public sector salaries 
mentioned here include salaries of federal and 
provincial employees. 
 
¶8.  Average nominal salaries grew by 16.7 percent 
between February 2005 and February 2006.  This growth 
was due to increases of 20.7, 17.6 and 7.1 percent in 
formal private sector, informal private sector and 
public sector salaries, respectively.  Inflation in 
the same period was 11.5 percent.  Therefore, the 
purchasing power of the average salaried worker in 
February 2006 was on average 4.7 percent higher than 
it was in February 2005.  Both formal and informal 
private sector salaries had significant gains of 
purchasing power of 8.2 and 5.5 percent, respectively. 
However, public sector salaries had a 4 percent 
decline. 
 
----------------------- 
WHOLESALE PRICE INDEXES 
----------------------- 
 
¶9.  The Wholesale Price Index (IPIM) decreased 0.6 
percent during March 2006, bringing the total IPIM 
increase since March 2005 to 11.0 percent.  This index 
measures the price changes of national products 
(including Primary Products and Manufactured Goods and 
Electric Power) and imports sold in the domestic 
market.  The IPIM also includes taxes.  The 0.6 
percent decrease in March was due to a 4 percent 
decline in Primary Product prices and a 0.7 percent 
increase in Manufactured Goods.  The decline in 
Primary Products was largely the result of a 7.4 
percent fall in Oil and Gas prices.  Electric Power 
prices did not change.  Import prices increased 0.6 
percent. 
 
¶10.  The Wholesale Basic Prices Index (IPIB) has the 
same coverage as the IPIM, except that it excludes 
taxes.  The IPIB decreased 0.6 percent in March, 
bringing the total IPIB increase since March 2005 to 
11.5 percent.  The 0.6 percent decrease in March was 
due to a 3.9 percent decline in Primary Product prices 
and a 0.7 percent increase in Manufactured Goods. 
Electric Power prices did not change.  Import prices 
increased 0.6 percent. 
 
¶11.  The prices for the sectors measured in the IPIM 
and IPIB are weighted using the corresponding value of 
product net of exports.  INDEC has devised another 
index, the Basic Prices to Producers Index (IPP), 
whose weights are calculated considering sales in the 
internal market as much as sales to the external 
market and excluding imports and taxes.  The IPP 
decreased 0.6 percent in March 2006, bringing the 
total IPP increase since March 2005 to 11.7 percent. 
Primary Products decreased 4.1 percent and 
Manufactured Goods increased 0.8 percent.  Electric 
Power prices did not change. 
 
------------------ 
CONSTRUCTION COSTS 
------------------ 
 
¶12.  The INDEC index measuring private housing 
construction costs in Greater Buenos Aires increased 
1.0 percent in March 2006.  These costs were 16.1 
percent higher than in March 2005.  The March increase 
is the result of a 1.4 percent increase in materials, 
a 0.5 percent rise in labor costs, and a 0.7 percent 
increase in other construction costs.  Wages of 
salaried employees working for the sector increased 
0.5 percent and payments to the self-employed grew 0.8 
percent.  Professional fees are not included among the 
labor costs considered by INDEC in the construction 
sector. 
 
------------------------------ 
INFLATION PREDICTIONS FOR 2006 
------------------------------ 
 
¶13.  The GOA's national budget includes a 9.1 percent 
inflation forecast for 2006.  The BCRA monetary 
program for 2006 announced on December 29, 2005, 
established an inflation target of between 8-11 
percent for 2006.  According to the BCRA's last survey 
of market expectations published on March, CPI 
inflation is expected to be 0.8 percent in April, and 
12.4 percent in 2006. 
 
 
¶14.  To see more Buenos Aires reporting, visit our 
classified website at: 
http://www.state.sgov.gov/p/wha/buenosaires 
 
GUTIERREZ