Published on Monday, July 3, 2023

Peru | Year-on-year inflation falls sharply, more than expected

Inflation decreased 0.15% m/m in June. The decline in the CPI was mainly explained by the drop in the prices of some foods (poultry, tubers, and some vegetables), the cut in residential electricity rates, and the drop in fuel prices.

Key points

  • Key points:
  • The year-on-year inflation rate decreased to 6.46% in June (May: 7.89%), favored by a high base of comparison (June 2022 inflation was 1.19% m/m).
  • Core inflation registered a level of 4.35% year-on-year, the third reduction so far this year, also favored by a high base of comparison. Despite this, it is still above the target range of the Central Bank.
  • At BBVA Research we maintain our forecast that inflation will continue to decline in the coming months. However, the speed of this decline will depend on (i) the impact that weather anomalies (El Niño Phenomenon) have on agriculture, fishing, and eventually transportation to supply markets; and (ii) the behavior of business margins, which were compressed in 2021 and 2022, when the increase in costs was not fully transferred to the final consumer.
  • We anticipate that by the end of the year inflation will be around 4%. In this context, we do not expect the Central Bank to begin a cycle of interest rate normalization in the very short term.

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