Argentina Inflation-Linked Bonds Rally; Govt CPI Data Surprise

BUENOS AIRES -- Argentina's inflation-linked bonds rallied Friday after the government reported higher-than-expected inflation in August.

The data fueled gains in bonds indexed to inflation and inspired broad optimism that the government may be reporting figures more in line with what economists say is the actual inflation rate.

The benchmark peso-denominated bond surged 4.12% in price to ARS88.50, to yield 13.38%. The price on the dollar-denominated Boden 2012 rose 0.86% to ARS293.50, to yield 17.19%.

Argentina's national statistics agency, Indec, reported that the consumer price index gained 0.8% in August from the prior month and rose 5.9% on year. The month-on-month increase was the highest reported by Indec since April 2008, but is still two to three times lower than private estimates.

Economic think tank Ecolatina estimated August's month-on-month inflation at 1.4%, while putting annualized inflation at 14.3%.

Economy Minister Amado Boudou launched a program in July to restore the credibility of the statistics agency. That was interpreted as a commitment to bring Indec's numbers more in line with private-sector estimates.

Indec's 0.8% monthly increase was enough to spark some hope that the government is moving toward correcting the way Indec data are handled.

"The market reacted well to the higher-than-expected print as this could be an indication that the authorities are getting more sensitive to the lack of credibility surrounding the official inflation numbers and are starting to react to growing public pressure for more transparency and accountability," Goldman Sacks analyst Alberto Ramos said in a market note Friday.

"This is an issue that seems to be part of Economy Minister Boudou's agenda and could eventually lead Indec to start reporting inflation figures that will gradually get closer to the average of non-government estimates," Ramos said.

Meanwhile, stocks came under pressure due to the losses on Wall Street.

Argentina's Merval Index shed 0.43% to close at 1,900.18 points.

The peso closed unchanged at ARS3.8550 to the dollar.