Itaú BBA - PERU – February’s inflation was below market expectations

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PERU – February’s inflation was below market expectations

March 1, 2019

At the margin Headline CPI slowed down, while core inflation remained practically unchanged

February’s CPI posted a month-over-month rate of 0.13% (from 0.25% a year ago), below our forecast of 0.24% and median market expectations of 0.23% (as per Bloomberg). Transport and communications were the main drag to the headline figure, contributing negatively 6 bp due mainly to lower gasoline prices (associated to the fall in oil prices). In contrast, household costs contributed positively with 7 bp as a result of higher residential natural gas tariffs.

Annual headline inflation slowed down, dragged by non-core components (mainly energy items), while core inflation remained broadly unchanged.  Annual headline inflation reached 2.0% year-over-year in February (from 2.13% in January). According to the breakdown, core inflation (excluding energy and food items) remained practically unchanged at 2.39% year-over-year in February (compared to January). In turn, food and beverage prices decelerated slightly to 1.49% year-over-year in February (from 1.53% in January), while gasoline prices decelerated to 0.72% in February (from 4.99% in January).  The indicator that tracks the percentage of items with annual inflation above the 2% target decelerated to 32% in February (from 37% in January).The diffusion index continu es to show pretty low inflation across a broad range of goods and services. 

At the margin, headline inflation also slowed down. The seasonally-adjusted, three-month annualized variation of the CPI was 0.86% in February (from 1.45% in January), while core inflation (excluding food and energy) remained practically unchanged at  2.54% in February (compared to January).

We forecast annual headline inflation of 2.6% by the end of 2019, supported by a recovery of domestic demand. Lower energy prices have been exerting downward pressure to the CPI the last couple of Months (January and February). However, core inflation (excluding energy and food items) seems stable, reflecting the state of the economy.  


Julio Ruiz

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