Peru | Inflation continues to decline and is now very close to the target range

The consumer price index increased 0.02% m/m in January 2024 and the interannual inflation rate stood at 3.02% (already very close to the upper limit of the target range).

Key points

• Key points:
• In the month, price variations were observed, largely seasonal, rising in the case of fruits (summer), falling in transportation (after the increase during the end of year holidays, to which were added the lower prices of vehicle fuels). The price of eggs also fell as the impact of avian influenza dissipates.
• The component of the consumer basket that excludes food and energy, a more trend measure of the pace at which prices advance, increased 0.01% m/m in January. Thus, in year-on-year terms this inflation indicator stood at 2.86% in January (December 2023: 2.90%).
• After the sharp decline in inflation throughout the second half of 2023, it begins the year with a somewhat more limited decline since a good part of the supply shocks that affected food prices last year have already been reversed.
• Inflation will probably enter the target range in the first quarter and the downward trend would continue during the next two because the year-on-year comparison base is relatively high, although the impact of global El Niño on the agricultural sector will provide some resistance.
• This environment gives the BCRP room to continue cutting its reference interest rate in February, seeking to support the recovery of economic activity. The reduction would, however, be limited (25bp) taking into account the caution with which the Central Bank has been acting.

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