Peru | Inflation has begun to fall, although at a slower pace than expected

Summary

Inflation printed at 1.25% MoM in March. This was due to the rise in the prices of some foodstuffs and the seasonal increase in the price of education services. On the other hand, the decrease in the prices of tubers and interprovincial air transport tickets somewhat moderated the result for the month.

Key points

• Key points:
• Year-on-year inflation decreased slightly to 8.40% in March (February: 8.65%).
• Core inflation printed at 0.88% in March (February: 0.27%). In year-on-year terms, this indicator reached 5.92%, accelerating for the third month in a row.
• Inflation has started to decline, although more slowly than expected, mainly affected by renewed supply shocks.
• At BBVA Research we continue to project that the decline will continue in the coming months. However, the probability that this decline will be somewhat slower than expected, particularly in the short term, has increased: the weather anomaly will continue to affect the supply of some foods, OPEC's recent announcement of cuts in oil production it could have an impact on local fuel prices, and the underlying component of inflation shows difficulties in curving. A slower decline in inflation could also affect inflation expectations. In this context, we continue to anticipate that inflation will end the year at around 3.5%, but the upward bias of this projection has been accentuated.
• This reinforces our view that, despite the slowdown in activity, the Central Bank of Peru will only have a limited space to start lowering the benchmark interest rate this year, which we expect will end in 2023 at 7.25%.

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