Itaú BBA - PERU – Below target inflation in August

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PERU – Below target inflation in August

September 1, 2020

Headline inflation stood below the central bank target for twelfth consecutive month

Inflation was below market expectations in August. CPI posted a month-over-month rate of -0.11% (from 0.06% a year ago), above our forecast of -0.18% and below market expectations of -0.08% (as per Bloomberg). The figure was driven mainly by lower food prices (-0.45%) associated to seasonality in fruits and vegetables, while upside pressure came from household living expenses (0.25% due to an update in electricity fees), transportation & communications (0.20% due to the release of 2020 auto models) and health item prices (0.22%).

On an annual basis, headline inflation stood below the central bank target for twelfth consecutive month. Annual headline inflation reached 1.69% in August (from 1.86% in July), while core inflation (excluding food and energy) decelerated further to 1.79% (from 1.81%). We note that core annual inflation was pressured by higher electricity prices (7.82% year-over-year in August, from 5.20% in July) and medical products prices, which continued to grow at a high level (4.56%, from 4.38%). In contrast, for the CPI groups food and beverages (1.74%), clothing (0.03%), transport and communications (0.91%) and other goods and services (1.39%) annual inflation was below the central bank target of 2% in August.  



At the margin, headline and core inflation also slowed down. The seasonally-adjusted three-month annualized variation of the CPI was 0.89% in August (from 1.85% in July), while core inflation (excluding food and energy) stood at 1.21% (from 1.25%).



We expect inflation at 0.5% by the end of 2020. A wide negative output gap will put further downward pressure on prices.

Julio Ruiz



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