March inflation was in line with both the Bloomberg market consensus and our call as the annual education price adjustment lifted consumer prices by 1.1% from February (1.9% a year earlier). The 1.1% headline increase was 10bps above the implicit estimate from the central bank in its IPoM. During the month, the education division rose 10.8% (+66bp contribution), while other drivers included tourism packages (6.4%; +8bps). Major downside pressures in the month came mainly from transport, particularly interurban buses (-15.7% MoM; -12bps contribution). Core inflation dynamics remain unfavorable. Consumer prices excluding volatile items rose 1.6% (1.5% in March 2022; IPoM implied rate: 1.8%), reflecting the stickiness of core inflation. In annual terms, inflation fell 80bps to 11.1%, continuing the downward trajectory from the 14.1% August peak. Core inflation, however, rose 10bps to 10.8%, 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 inflation rising at the margin. Annual tradable prices dropped 2.3pp to 12.0% as food inflation fell 4.0pp to 17.4% (from a 24.7% peak in December). According to our estimates, the basic food basket fell 5.3pp to 18.6% yoy. Meanwhile, energy inflation eased by a further 2.9pp to 10.3% yoy (September peak of 23.9%). Non-tradable inflation rose 0.9pp to 9.9%, with services rising 90bps 10.1% yoy. Excluding education, non-tradable inflation rose 40bps to 9.7%. At the margin, inflation accumulated in the first quarter was 6.9% (SA, annualized; 8.9% in 4Q22). On the other hand, core inflation rose, reaching 12.8% (SA, annualized; 5.8% in 4Q22), similar to peaks earlier in 2022.
More solid activity and current inflation data are consistent with a slower disinflation path. We expect inflation to end the year somewhat above our current 4.3% call. The slower adjustment of core inflationary pressures together with the central bank’s more recent guidance led us to postpone our call for the start of the easing cycle from June to 3Q23. Our preliminary estimate for April CPI is 0.4%, leading annual inflation to around 10%. The next analyst survey will be released on Tuesday, with particular interest in inflation expectations and the expected policy rate path.
Andrés Pérez M.
Vittorio Peretti
Ignacio Martinez Labra