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Core inflation remained high and sticky at the margin.
2023/12/08 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Inflation in November was broadly in line with market expectations.  Consumer prices increased 0.47% from October to November (0.77% in November 2022), compared to the Bloomberg market consensus of 0.46%, and our 0.50% call. The main contributors in the month were housing (+1.05% MoM, +32bps), transport (+0.72% MoM, +10bps; driven by the fuel price adjustment), and restaurants (+0,83% MoM, 9bps). In contrast, food prices decreased 0.45% MoM, subtracting 9bps from the monthly variation. The fall in food prices explained most of the surprise relative to our forecast given that we expected some compensation from the implementation of the health tax on processed foods. Core inflation (excluding food and energy) increased 0.33% from October to November (+0.58% one year earlier). Overall, annual headline inflation fell to 10.15% (from 10.48% in October), while core inflation declined from 9.49% to 9.21% (10.60% peak in April). The disinflation process continues to unfold slowly, mainly driven by food prices, and with inflation expectations far from target, we see no urgency to start the easing cycle later this month. We expect BanRep to begin a gradual easing cycle in 1Q24. 


Core inflation remained high and sticky at the margin. Non-durable goods inflation (mainly food) came in at 12.39% YoY, falling 51bps from the previous month. Meanwhile, with the increase in fuel prices, energy inflation reached a new peak of 24.96% YoY, increasing 4.1pp from October. Durable goods inflation fell from 7.72% to 5.45% (16.8% peak in January). Core inflation moderated 28bps to 9.21%, but services inflation fell by a milder 3bps to 9.39% (9.51% peak in September). At the margin, we estimate that inflation accumulated in the quarter was 8.6% (SA, annualized), ticking down from the 9.0% in 3Q23. Meanwhile, core inflation reached 6.7% (SA, annualized), up 20bps from 3Q23. 


Effects from El Niño, the continued unwinding of the fuel price subsidy and a large expected minimum wage adjustment, the disinflation process will likely remain slow. Our preliminary estimate for December CPI, to be released on January 9, is between 0.6%-0.7%, leading annual inflation to fall to around 9.5%.