Argentina Backtracks On Recent Steel Industry Price Caps

Argentina's government on Wednesday backtracked on a recent decision to cap prices on certain steel products, citing changing market conditions.

A month ago the government invoked a 1974 supply law to force the steel industry to return prices to Jan. 21 levels due to "sustained price hikes" for steel products.

The rollback, which the steel industry said it would fight in court, covered all aspects of the domestic steel supply chain, including producers, distributors and retailers.

"The measure in question was dictated to achieve price stability, which is fundamentally important to ensure continued economic activity and maintain macroeconomic balance," the government said Wednesday in a new resolution. "The market conditions that were in effect at the time of the previous resolution are no longer in place, which is the reason for undoing the measure."

The effort to cap steel prices was accompanied by a similar move last month to cap retail fuel prices, as well as a separate bid to prevent the media conglomerate Grupo Clarin SA (GCLA.BA) from raising cable television prices.

The local unit of Royal Dutch Shell PLC (RDSA, RDSA.LN) has been fighting the cap on fuel prices in court. Grupo Clarin said it would also fight for its right to raise prices.

In recent months the government has stepped up its effort to prevent consumer prices from rising, often by verbally ordering company executives to cap or lower prices.

Though private-sector economists have long said inflation is a significant problem, government officials have long denied this. Only recently have they begun addressing the issue by acknowledging "an immense dispersion of prices" in the economy.

Even so, Economy Minister Amado Boudou and Central Bank President Mercedes Marco del Pont have scorned economists for recommending traditional remedies for taming inflation.

The heavily criticized national statistics agency, Indec, puts annual inflation at 10.6%. But nearly all private-sector economists here say consumer prices are rising about 25% a year or possibly even higher.

Recent surveys indicate that inflation is a growing concern for voters ahead of a presidential election in October.

A spokesman for the Techint industrial group of steel companies wasn't immediately available to comment.

-By Taos Turner, Dow Jones Newswires; 5411-4103-6728; [e-mail]