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Argentina: inflation ahead.

Argentina is clearly on the road to recovery after its economic implosion of 2002. For the third year in a row, economic output grew, out-pacing 8% a year since 2003. Consumer prices, however, are shooting up as well.

Rising inflation bears watching. Prices exceeded 12% growth in 2005 and were expected to climb even higher this year. "The inflation rate is not a crisis, but it is a negative factor," says Joydeep Mukherji, a director at U.S. ratings agency Standard & Poor's. "The big challenge is to control inflation while maintaining stable economic growth."

The government can do two things. First it must get a grip on public spending, Mukherji says. Secondly, price controls can help, according to an Economist Intelligence Unit report. In December of 2005 the Kirchner administration arranged an agreement with the country's large supermarkets to freeze prices on 218 staple goods through the end of January. That move came just in the nick of time before both public and private-sector wage hikes took affect in March.

The country's economy is expected to grow 5.8% this year. The consumer price index, meanwhile, should shoot up by 14.2%. While these figures aren't optimal, they beat 2002's figures: growth contracted by 10.9% while inflation soared by 41%.

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Title Annotation:INDICATORS
Author:Oliveira, Viviane
Publication:Latin Trade
Date:May 1, 2006
Words:213
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