Itaú BBA - PERU – January’s inflation fell slightly

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PERU – January’s inflation fell slightly

February 1, 2019

Food and gasoline inflation dragged headline CPI on annual basis

January’s CPI posted a month-over-month rate of 0.07% (from 0.13% a year ago), below our forecast of 0.22% and median market expectations of 0.17% (as per Bloomberg). Household costs contributed the most to the headline figures (contributed 14 bp to the headline growth) due to an adjustment of power utility and water tariffs. In contrast, the item transport and communication contributed negatively to inflation with -10 bp due to a base effect (normalization of airfare and bus tickets after holidays in December) and a deceleration in gasoline prices.

Annual headline inflation slowed down, dragged by non-core components (energy and food), while core inflation accelerated.  Annual headline inflation reached 2.13% year-over-year in January (from 2.19% in December). According to the breakdown, core inflation (excluding energy and food items) accelerated to 2.40% year-over-year in January (from 2.21% in December). In turn, food and beverage prices decelerated to 1.53% year-over-year in January (from 1.95% in December) and gasoline prices decelerated to 4.99% in January (from 7.74% in December).  The indicator that tracks the percentage of items with annual inflation above the 2% target remained practically unchanged in January (compared to December) at 37.7%. The diffusion index continues to show pretty low inflation across a broad range of goods and services. 

At the margin, headline inflation also slowed down while core inflation accelerated slightly. The seasonally-adjusted, three-month annualized variation of the CPI was 1.50% in January (from 2.02% in December), while core inflation (excluding food and energy) increased to 2.50% in January (from 2.22% in December).

We forecast annual headline inflation of 2.6% by the end of 2019, supported by a recovery of domestic demand. Lower energy prices dragged headline inflation in January. However, core inflation (excluding energy and food items) seems to be accelerating gradually, reflecting some demand pressure.  

Julio Ruiz

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