Largest price increase since July inflation units Bonds

Argentina may report an increase in consumer prices fastest since July, fueling demand for peso bonds indexed to inflation, investors have delivered nearly twice the performance of public debt in dollar terms this year.

The national statistics institute said today that prices rose 11.2 percent in November from the same month a year ago, compared with an increase of 11.1 percent in each of the three previous months, as estimated median of seven analysts surveyed by us. The yield of 7.13 percent in Argentina, local currency bonds indexed to inflation compared to 3.3 percent in Mexico and 6.07 percent in Brazil, according to Barclays Plc.

Argentina's peso bonds tied to consumer prices returned 52 percent this year, compared with 34 percent for dollar bonds, according to Barclays and JPMorgan Chase & Co. economists and investors, including Eduardo Costantini of Asset Management Consultatio say inflation is more than double the official rate.

"Inflation is accelerating because there is no tools to stop or slow down or change the dynamics of inflation," Costantini, who manages 1.2 billion U.S. dollars including Argentina's debt indexed to inflation, said in an interview from 09 December in Buenos Aires. Prices are rising at least 20 percent per year, he said.

Argentine consumer prices rise by 26 percent this year from 2009, most of the world after Venezuela, said Miguel Kiguel, a former undersecretary of finance. The central bank prints pesos at the end of November at the fastest pace in at least four months, which led the country to start importing 100,130 million pesos ($ 25) notes in Brazil.

Printing money

"It's getting harder for them to hide," said Juan Pablo Fuentes, Latin America economist at Moody's Analytics Inc. in West Chester, Pennsylvania. "The central bank is printing too much money. We have monetary and fiscal policies now very expansive."

Public spending increased 45 percent in October to 36.9 billion pesos. Tax revenue rose 53 percent to about 40 billion pesos in the same period.

Inflation could accelerate to 40 percent next year in a "worst case scenario," said Kiguel, who served under former President Carlos Menem, in a Dec. 10 interview in Buenos Aires. The government is intensifying the growth of an already overheated economy, he said.

The National Statistics Institute will publish the November inflation report tomorrow at 2 pm New York time.

Inflation estimates

Economists and politicians including Vice President Julio Cobos reports have questioned the government's inflation since 2007, when then-President Nestor Kirchner began changing personnel in the national statistical institute. Kirchner, died in October.

President Cristina Fernandez de Kirchner, the widow of former president, he brought in the International Monetary Fund officials last week to offer advice on creating a new national inflation index.

The Argentines expect prices to rise 30 percent over the next 12 months, according to a survey by November 15, 1210 published by the people of Buenos Aires based at the Universidad Torcuato Di Tella. The poll has a margin of error of 3.5 percentage points.

A central bank official, who declined to be identified in accordance with internal policy, declined comment. Messages left at the Economy Ministry were not answered.

The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries fell 1 basis point to 505 at 6:15 am New York, according to JPMorgan Chase & Co.

Guarantees linked to economic growth rose 0.05 cents to 14 cents. The peso rose 0.1 percent to 3.9733 per dollar yesterday.

Credit Default Swaps

The cost of protecting Argentina's debt against non-payment for five years with credit-default swaps rose 5 basis points to 636, according to data compiled by CMA. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements. A basis point is 0.01 percentage point.

Minister of Economy, Amado Boudou, began meeting with officials of the Paris Club group of creditor nations yesterday to discuss the solution about $ 7 billion in defaulted debt. Boudou said in Paris that the country is seeking a solution with the club, whose members are Germany, Japan and the U.S., which will enable Argentina to maintain growth and "open investment in the economy."

the second largest economy in Latin America is forecast to grow 9 percent this year, the most since 2005 after a record of 55 - million metric tons of soybean crop and record car production, according to a forecast central bank. vehicle production increased 36 percent in November from the previous year and exports of cars by 26 percent during the same period, the association of automobile manufacturing country, said on 3 December.

Policy Changes

Even with the government with the IMF at a rate of inflation, the statistical agency is unlikely to price increases of over 12 percent, sources said, to Moody's. Unofficial inflation probably will remain a 30 percent growth in 2011 slows to 5 percent, he said.

"To close that gap, the government must take seriously what policy moves right, by spending slowdown," said Fuentes. "The economy has the capacity to grow from 9 to 10 percent."