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Inflation in Peru stood at 0.07% month-on-month in August, raising the year-on-year rate to 4.4%. This increase is due to the readjustment of electricity tariffs and the rise in fuel prices. Core inflation moderated to 4.5%, but remains above the target range. Inflation is expected to remain high in the coming months.

The Central Reserve Bank of Peru decided to maintain its benchmark interest rate at 4.25% for the eleventh consecutive month. Although inflation is expected to return to the 2% target range, there are warnings of risks such as the El Niño phenomenon and geopolitical tensions that could generate more persistent effects.

Energy drove inflation in July. The headline rate rose by 0.4 pp, to 3.6% YoY, and the core rate by 0.1 pp, to 3.0%, both in line with expectations. For August, headline inflation is estimated to rebound to a range of 4.1% to 4.3%, with energy as the main upward pressure.

Annual inflation declined to 6.03% in July, after four consecutive months of increases. As a result, it decreased by 11 bps compared to June, although it remains 93 bps above the level observed at the end of last year.

Year-on-year inflation in Peru rose to 4.1% in July (0.29% monthly), exceeding the central bank's target range. The increase is attributed to food supply restrictions and seasonal factors. Core inflation, which excludes food and energy, also picked up, standing at 4.6% year-on-year.

Consumer price inflation came in at 1.78% m/m, slightly below our expectation (1.85% m/m) and the consensus (1.9% m/m), bringing annual inflation down to 31.8%. We continue to maintain our 30% year-end inflation forecast, considering volatile energy prices and still-elevated, unanchored inflation expectations.

Climate change and transition policies impact inflation and economic activity. Central banks must analyze these effects to manage monetary policy, distinguishing between temporary price hikes and persistent inflation, without becoming climate activists.