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Argentina’s Annual Inflation Reaches 61% as Investors Worry

·2 min read

(Bloomberg) -- Argentina’s monthly inflation slowed slightly more than expected in May, with price gains reaching almost 61% in annual terms as investors worry about the government’s ability to pay its local debt.

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Consumer prices rose 5.1% last month from April, just below a 5.2% median estimate of economists surveyed by Bloomberg. From a year ago, inflation climbed to 60.7%, a new 30-year high, according to government data published Tuesday.

Health costs shot up 6.2% from the previous month. Transport, clothing and shoes, and restaurants and hotels were also categories that rose above the headline figure.

Argentina is facing one of the world’s more damaging inflation spikes, and the central bank is very likely to boost the key interest rate this week in response to the price increases. The government has been focusing its efforts on curbing inflation through price freezes.

Read More: Inflation at 58% and Rising Leaves Argentina’s Shoppers Adrift

High inflation has also rattled investors, who are increasingly concerned that the government can pay its inflation-linked peso bonds, which make up about 80% of the government’s local debt obligations. So far in June, investors have withdrawn 10% of total inflation-linked assets, the biggest drop on record.

Economy Minister Martin Guzman has emphatically stated the government will always pay its peso-denominated debt. A new government debt auction Tuesday will likely test market appetite after last week’s selloff.

The jitters also follow the International Monetary Fund’s first review of its $44 billion program with the country. The IMF said the path to achieving its year-end targets, such as its fiscal deficit and reserve accumulation, may shift due to the impact of Russia’s invasion of Ukraine.

Economists surveyed by the central bank forecast inflation ending this year at nearly 73%.

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