Argentina, seeking to rebuild relations with foreign investors,will unveil a new consumer price index this week that probably willacknowledge something the government has denied for seven years:that it systematically underestimated inflation.

The nationwide index released on Feb. 13 will replace thebenchmark greater Buenos Aires index that has shown inflation atless than half the pace of private estimates since 2007, whenformer President Nestor Kirchner replaced senior staff at thestatistics agency. The move comes a year after Argentina became thefirst nation to be censured by the International Monetary Fund forfailing to report accurate economic data.

All 10 analysts surveyed by Bloomberg said the new index willshow consumer prices are rising more than previously reported bythe government, though not as much as 28.4 percent estimated byprivate economists for December. Only half said the changes wouldbe enough to placate the IMF, a first step to restoring relationswith international investors following a $95 billion default in2001.

“Bit by bit they can leave behind a complicated past that'simplicated by lying about inflation,” said Alberto Bernal, head offixed-income strategy at Bulltick Capital Markets. “It's a policythat's so short-sighted and ridiculously wrong.”

Economy Ministry spokeswoman Jesica Rey declined to comment whenasked by Bloomberg News about its inflation policy and the surveyresults.

Peso Tumbled

Inflation in 2013, a year in which the peso tumbled 25 percentagainst the dollar, was 10.9 percent, according to the government.The new index will show inflation of 22 percent in 2014, accordingto the survey's median estimate.

Reporting faster inflation could benefit holders ofinflation-linked bonds. National Statistics Institute DirectorNorberto Itzcovich said the bonds would be tied to the new index,Ambito Financiero reported Oct. 7.

The notes have gained 3.5 percent since Sept. 16, when Argentinabegan talks with the IMF on creating a new inflation index.

The official consumer price index has been disregarded as aparameter by workers negotiating raises. Wages have risen anaverage of 24 percent annually over the past seven years, comparedwith average annual inflation of 9.4 percent.

Police officers in Cordoba, Argentina's second largest city,went on strike in December and only agreed to resume their dutiesafter a 33 percent wage increase. Their absence from the streetssparked looting, in which at least two people died. The strikesspread to other provinces, leaving at least six more peopledead.

The government devalued the peso by 19 percent in January asreserves dropped, in a move that sparked a new round of priceincreases. International reserves fell 35 percent to $27.7 billion,more than a seven-year low, as the government imports energysupplies and pays foreign debt.

Argentine bonds have lost 8.7 percent this year, the most inemerging markets after Venezuela, on fears the drain of reservescould lead to a balance of payments crisis. Economic growth in 2014will slow from an estimated 3.2 percent last year to 2.3 percent,falling short of the Latin American average, according to analystsin a separate poll by Bloomberg.

Repairing Relationship

Repairing its relationship with the IMF is a prerequisite ifArgentina wants to settle $6.5 billion of overdue debt with ParisClub creditor nations, said Juan Pablo Fuentes, an economist atMoody's Analytics Inc. Economy Minister Axel Kicillof, who traveledto Paris last month to meet officials representing the 19-countrygroup, said Jan. 21 that an eventual agreement could help companiesthat are blocked from obtaining credit abroad.

The government also plans to unveil a new gross domestic productindex in March.

“Investor confidence, the IMF's approval, and Argentina's returnto international markets are all at stake—it's truly a key moment,”Fuentes said in a telephone interview from West Chester,Pennsylvania. “Things have become complicated for the government inthe past few months, and some people could see this as their lastchance.”

The press office at Elliott Management Corp., billionaire PaulSinger's hedge fund that has sued for full repayment on defaultedArgentine bonds, didn't respond to a telephone call seekingcomment.

Former Interior Commerce Secretary Guillermo Moreno in 2011fined private consulting firms that published inflation estimatesthat contradicted the government. That led opposition lawmakers tobegin publishing those surveys to protect the economists.

Opposition lawmakers will publish their January reporttomorrow.

As long as the government is transparent about the methodologyapplied in the new survey, it won't matter if the numbers don'tconcur with those of private estimates, said Bulltick's Bernal.

“What will no longer be accepted here is that the governmentpulls the number out of a magician's hat,” Bernal said. “I only seethis being bad news if they announce an index that says the same asthe last. That would be a joke in bad taste.”

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