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Inflation has peaked, but the disinflation process will be slow.

Consumer prices increased by 0.78% from March to April, below the Bloomberg market consensus of 0.90% (Itaú: 0.84%), and the 1.25% in April 2022. The main contributors in the month were utilities (+35bps) and transport (+17bps), while food prices fell 0.07% MoM. Overall, annual inflation fell to 12.82% (from 13.34% in March), while core inflation (excluding food and energy) rose from 10.53% to 10.60%. While inflation is high, the central bank’s latest analyst survey shows medium-term inflation expectations are gradually correcting from elevated levels (one-year inflation expectations fell 21 bps to 7.0% and two-year inflation expectations remained broadly stable at 4.0%). With inflation having peaked and inflation expectations likely to continue to correct down, we think the Board will likely stay on hold at 13.25%in the next policy meeting. 


Core pressures remain high amid significant indexation pressures, but there has been an improvement at the margin. Non-durable goods inflation (mainly food) came in at 18.13% yoy, moderating 165bps from the previous month. Meanwhile, energy prices increased 39bps to 20.91% (a cycle peak as the government gradually reduces the fuel subsidy). Services inflation rose 27bps to 9.47%, while core inflation picked up 7bps to 10.60% (the smallest increase this cycle; 50bps average monthly change). At the margin, we estimate that inflation accumulated in the quarter was 11.3% (annualized), down from 13.9% in 1Q23 and 13.7% in 4Q22. Meanwhile, core inflation reached 11.9% (annualized), from 12.6% in 1Q23 (10.7% in 4Q22). 


Inflation has peaked, but the disinflation process will be slow. While food prices are correcting, the reduction of the fuel subsidy and significant inertia will keep overall pressures strong. We see inflation ending the year at 9.5%. Looking ahead, upside risks are significant, particularly if a strong El Niño materializes. 

Vittorio Peretti 

Carolina Monzón