In February 2007, the government of Argentina announced that inflation for January was 1.1 percent, significantly below the 1.5 percent to 2 percent rate most economists expected. The lower number was, many believe, achieved by simply fudging the numbers. That is, by falsely reporting the actual increase in the cost of some foods and the increase in health insurance, among others.

a) Explain why such misreporting of inflation could be viewed as good or bad.

To do this, put yourself in the place of a union negotiating for a new wage contract. Then put yourself on the other side of the table and think about it as the negotiator for management.

b) How might such actions affect the public’s reliance on these inflation numbers in the future?

c) How might such actions affect perceptions by the public and potential investors in bonds issued by the Argentine government?