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We expect some payback in coming months along with increased pass-through pressures.
2023/09/08 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Inflationary pressures underwhelmed across the board in August with core prices falling from July. Headline inflation rose 0.11% from July to August (1.2% in August last year), well below market expectations (Bloomberg market consensus, asset prices and Itaú: 0.4%). Importantly, the print also must have surprised the BCCh to the downside, considering that the IPoM’s implicit monthly average for headline CPI for August and September is 0.3%. Core inflation (ex-volatiles) fell 0.1% (+0.9% last August; Itaú: +0.1%; IPoM: +0.2%). Relative to our forecast, the downside inflation surprise came from the transportation division, but weaker-than-expected pressures were broad-based. Significant inflationary pressures in the month came from food prices (+0.3% MoM and 7bp contribution; led particularly by potatoes and tomatoes), along with housing expenses (+0.4% and 5bp contribution; driven by gas prices). On the other hand, a third of the divisions posted a negative monthly variation (with new cars and financial services as notable drags). As a result, the annual CPI print fell 1.2pp to 5.3%, the lowest rate since August 2021 (14.1% cycle peak in August last year). Core inflation dropped 1.1pp to 7.4%.


Inflationary pressures softened further at the margin. Annual tradable prices dropped 1.5pp to 4.3%, as energy and food price pressures continued to ease. Energy prices continued to fall, contracting 3.4% YoY (from +2.1% in June; +23.9% peak in September last year), yet the recent rise in global oil prices will limit the price drag ahead. Food prices fell 1.8pp to 9.2% (24.7% peak in December), but recent rains should slow food price disinflation. Non-tradable inflation fell 0.7pp to 6.6%. Services inflation was down 0.6pp, to 5.6% yoy. At the margin, inflation accumulated in the quarter was 1.7% (SA, annualized; 6.5% in 1Q23 and 2.3% in 2Q23). Meanwhile, core inflation reached 3.4% (SA, annualized; 11.3% in 1Q23 and 5.8% in 2Q23).


While we expect some payback in coming months along with increased pass-through pressures, higher gasoline prices and food price strain following intense rainfalls (already seen in potato prices: +33% in the last two months), the swifter inflation fall should lead to expectations of even larger policy rate cuts in the near term. 

The next monetary policy meeting will take place on October 26, after the publication of the September inflation. We preliminarily expect a 0.5-0.6% monthly increase. We expect a 3.9% yearend rate but with risks still tilted to the upside given recent supply shocks (albeit reduced given today’s surprise; BCCh: 4.3%).