Argentina firmly expects to meet its stated inflation target for this year, despite a higher-than-expected rise in prices last month.
The country's central bank chief, Martin Redrado, in an interview yesterday with Emerging Markets, said he thinks inflation will stay within the 5-8% band the bank has been targeting, although "we expect it at the higher end of the target".
"Obviously news of high inflation is not a pleasant feature to have, but we think it's a one quarter, one shot event," says Redrado, who took over as head of the bank last September. "It will clearly come down to more normal levels."
Government data released earlier this week showed that consumer prices rose by an unexpected 1.5% in March. The latest figure brings inflation over the past 12 months to 9.1%, compared with just 2.3% over the previous 12 months.
"I would say that from the point of view of monetary policy we have already taken a distinctive approach since the beginning of the year by ending the era of easy monetary policy that was the trend between 2002 and 2004," says Redrado.
He puts the recent spike down to a boost in aggregate demand in December and early this year as well as the government's expansive fiscal policy. The latter, though, helped the economy to grow by more than 9% last year.
Redrado argues that the high inflation figures are "not monetarily based" but he also says that a recent change in bias in monetary policy is likely to stem any further inflation. He also points out that "monetary policy has a lag in terms of effect".The main cause behind Argentina's high inflation is the country's consumer-driven recovery from the December 2001 economic collapse. One solution is to curb any generalized increase in salaries.
Analysts seem unsurprised by the latest data. "It's no surprise that inflation has picked up. They're taking steps to tighten monetary policy and you will probably get inflation of around 10% this year," says James Barrineau of Alliance Capital.
Staying within the desired target is likely to prove extremely challenging. "Clearly in order to maintain, the 8% target, the second quarter is going to be critical," Redrado says. "The government is taking measures on the fiscal and monetary side in order to show that this [inflation] is not a process that will reaccelerate," he says. "In order to achieve the target we need to be very very prudent."