Itaú BBA - PERU - Annual Inflation decreased in August

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PERU - Annual Inflation decreased in August

September 3, 2018

Core index and food prices decelerated

August CPI posted an inflation of 0.13% month-over-month, below our forecast and median market expectations (as per Bloomberg) of 0.24%. The result was below the 10-year median variation for August by 24 bps. Among the groups that contributed the most to August print were: (1) food prices (contributed 7 bps) as a result of fruits and vegetables seasonality; (2) recreational services, leisure and education (2 bps), mainly due to increases in education fees (3) transport and communication (2 bps), pressured by air fares and energy prices. In turn, core inflation (excluding food and energy) posted 0.09% in August. 

Annual headline inflation decelerated, with inflation for both core items and food falling. Annual headline inflation decelerated to 1.07% year-over-year in August (from 1.62% in July). Food prices fell by 1.06% year-over-year (from -0.28% year-over-year in July). Also, core inflation (ex- food and energy) decreased to 2.04% in August (from 2.33% in July). Moreover, the diffusion index shows that inflation is pretty low across a broad range of goods and services.  The indicator that tracks the percentage of items with annual inflation above the 2% target posted 28% in August (from 32% in July).  

At the margin, inflation also decreased. The seasonally-adjusted 3-month annualized variation of the CPI decreased to 3.15% in August (from 3.4% in July).  Meanwhile, the core index inflation (excluding food and energy) decelerated to 2.89% (from 3.06% in July).

We expect annual headline inflation to increase to 2.2% by the end of 2018. A normalization of food prices and increasingly firmer domestic demand will likely push annual inflation slightly up from current levels. 

Julio Ruiz

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