Itaú BBA - ARGENTINA - Central Bank Survey: 2018 inflation expectations continue on the rise

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ARGENTINA - Central Bank Survey: 2018 inflation expectations continue on the rise

October 4, 2017

Analysts continued to revise upward their inflation forecasts for 2018, to 15.8% from 15.7%

Analysts maintained their inflation forecasts for 2017 but again adjusted slightly up those for 2018 according to the latest Central Bank survey of expectations. Analysts forecast now higher monetary policy rates (7-day repo) by end-2017 and 2018, although they continue to expect some easing before the end of this year. Growth forecasts have remained unchanged for both years.

Inflation expectations for 2017 stood at 22.0%, similar to our forecast, so survey participants do not expect the central bank to meet the target set for this year (12-17%). The CPI for September will come out next Thursday, and it is expected to show no substantial improvements relative to the previous few readings. Analysts expect consumer prices to increase by 1.4% per month during every month of the last quarter of the year, clearly above the levels pursued by the monetary authority (around 1% mom for the end of this year, according to its latest statements). For the core reading, participants increased their yearend inflation expectation to 20.3% from 20.1%, with a 1.3% monthly increase during the last quarter of 2017.

Analysts continued to revise upward their inflation forecasts for 2018, to 15.8% (from 15.7% in the previous survey). Our forecast for next year stands at 16%. While for the next 12-months, the market expects 16.9% inflation (below the 17.2% posted in September) the reading is still above the upper bound of the target range for next year (8%-12%).

As the central bank shows commitment with its ambitious inflation targets and inflation remains sticky, survey participants adjusted once more their expectations for the year-end reference rate, to 25.5% (from 24.75% in September and 23.75% August). We no longer longer expect changes in the reference rate this year –currently at 26.25%- as the central bank reiterates it will pursue a stronger disinflation of core items. The president of the central bank, Federico Sturzenegger, affirmed recently that there is no room, at all, to ease the monetary policy in the coming months. The survey showed that participants now expect a reference rate at 19.5% for 2018 (up from 18.25% in August and 17.5% in July). We expect the policy rate at 20% in December 2018.

Finally, economists kept their GDP growth forecasts for this year at 2.8% and at 3% for 2018 (Itaú forecast: 2.5% and 2.8%, respectively).

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Juan Carlos Barboza
Diego Ciongo

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