Published on Friday, September 1, 2023

Peru | Inflation continued to decline in August, although at a slower pace

Inflation was 0.38% m/m in August. The rise in the CPI was mainly explained by the rise in the prices of some foods (vegetables, fruits) and fuels.

Key points

  • Key points:
  • The year-on-year inflation rate decreased to 5.58% in August (July: 5.88%), favored by a high base of comparison (August 2022 inflation was 0.67% m/m).
  • Core inflation registered a level of 3.81% year-on-year, the lowest since January 2022. Despite this, it is still above the target range of the Central Bank.
  • At BBVA Research we maintain the forecast that headline inflation will continue to decline in the coming months, largely because the high year-on-year base of comparison will remain. In addition, commodity prices continue to show strong declines in year-on-year terms and domestic demand is weak. However, the speed of this decline could be compromised by the impact that the El Niño phenomenon might have on agriculture, fishing, and transportation to supply markets.
  • We continue to project that inflation will be around 4% by the end of the year, but the upward bias that this forecast already had has been accentuated. Taking into account the downward trend of the different inflation measures, the weakness of domestic demand, the restrictiveness of the monetary position, and that from our point of view the latest statement from the central bank leaves everything ready to start the cycle of reference rate cuts, we continue to anticipate that the BCRP will be encouraged in September to lower the policy rate by a quarter of a percentage point.

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