Inflation in April fell back into single-digit terrain, but the adjustment of health services amid significant indexation kept core inflationary pressures elevated. The 0.3% headline increase was 10bps below both the Bloomberg market consensus and our call. During the month, the health division rose 1.5% (+11bp contribution), as public medical consultation prices readjusted, while other drivers included transport (0.8% and +10bps; particularly air travel). Major downside pressures in the month came from tourism packages (10.6% fall, -14bps). The netting of the tourism and air travel contributions was key behind the downside surprise to our call. Core inflation dynamics remain unfavorable. Consumer prices excluding volatile items rose 0.7% (1.1% in April 2022), reflecting the stickiness of core inflation. In annual terms, inflation fell 1.2pp to 9.9%, continuing the downward trajectory from the 14.1% August peak and the first single-digit print since March last year. Core inflation dropped 50bps to 10.3%, remaining in the 10-11% range for the most part of last year reinforcing the latest central bank signaling that rates would need to stay high for longer in order to see a clear downward core inflation trajectory ahead. We expect rate cuts only in 3Q23.
Core inflationary pressures remain high at the margin. Annual tradable prices dropped 1.9pp to 10.1% as food inflation fell 2.6pp to 14.8% (from a 24.7% peak in December). According to our estimates, the basic food basket fell 3.4pp to 15.2% yoy. Meanwhile, energy inflation eased by a further 2.2pp to 8.1% yoy (September peak of 23.9%). On the other hand, significant indexation sees a slower correction for non-tradable inflation, falling 0.2pp to 9.7%, with services down 80bps 9.3% yoy. At the margin, inflation accumulated in the quarter was 5.7% (SA, annualized; 7.0% in 1Q23 and 8.2% in 4Q22). On the other hand, core inflation reached 10.5% (SA, annualized; 11.9% in 1Q23 and 6.8% in 4Q22).
We see inflation by year-end at 4.5%. We expect core goods inflation to fall swiftly to low 2% by yearend, while core services will fall more gradually. Nevertheless, we note that negotiations to significantly raise the minimum wage this year and through July 2024 are a key upside risk to our call. Our preliminary estimate for May CPI is 0.3%, leading annual inflation to fall 100bps to 8.9%. The next trader and analyst surveys will be released on Tuesday and Wednesday, respectively, with particular interest in inflation expectations and the expected policy rate path.
Andrés Pérez M.
Vittorio Peretti
Ignacio Martinez Labra