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Published on Monday, February 2, 2015

Peru. Inflation approaches the target range

The consumer price index rose 0,17%MoM in January. This reflects higher food and electricity prices, both of which offset the decline in those of fuel. As a result, YoY inflation dropped to 3,07%, thus approaching the Central Bank’s target range. We believe that it will go back into the target range in the remainder of the first quarter and will be close to its centre by early 3Q15. This forecast is supported by the current absence of demand pressures and by the ongoing transmission to local prices of the significant reduction oil world prices have had. These two factors are expected to offset the impact of the domestic currency depreciation. Hence, on the side of prices, we see room for a policy rate cut anytime soon, perhaps as early as February, in order to step up output’s recovery. However, the final decision will probably also take into consideration the depreciation pressures in the FX market in the days before the monetary policy meeting.

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