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Inflationary pressure eases at the margin.
2024/02/08 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Consumer prices increased 0.92% from December to January (1.78% in January 2023), in line with our call, while slightly below the Bloomberg market consensus of 0.95%. The main contributors in the month were transport (+1.99% MoM, +27bps; driven by the fuel price adjustment and public transport increases in some cities), utilities (+0.84% MoM, +26bps) and hotels and restaurants (+1.72% MoM, +19bps), while food price pressures moderated (+0.48% MoM, +9bps), still not reflecting a meaningful impact from the “El Niño” phenomenon. Consumer prices excluding food rose 1.02% MoM, in line with our call. Inflation excluding food and energy (core) increased 0.86% from December to January (+1.61% one year earlier). Overall, annual headline inflation fell to 8.35% (from 9.28% in December), while core inflation declined from 8.81% to 8.01% (10.60% peak in April last year). Softening domestic demand, favorable FX dynamics and base effects are expected to consolidate the disinflation trend and support further rate cuts. However, the unease of BanRep’s Board regarding inflationary risks from the “El Niño” phenomenon, the minimum wage increase and future adjustments of diesel prices will determine the pace of the easing cycle. 


Services inflation moderated, while energy prices remain pressured by “El Niño”.  Non-durable goods inflation (mainly food) came in at 9.23% YoY, falling 126bps from the previous month. Meanwhile, given the increases in electricity prices, energy inflation reached a new peak of 27.1% YoY, increasing 104pp from December. Durable goods inflation fell from 3.24% to 1.16% (16.8% peak in January). Core inflation decreased by 80bps to 8.0%, while services inflation dropped by 65bps to 8.68% (9.51% peak in September). At the margin, we estimate that inflation accumulated in the quarter was 5.7% (SA, annualized), falling from 7.1% in 4Q23. Meanwhile, core inflation reached 5.9% (SA, annualized; +6.9% in 4Q23).


The gradual disinflation process will continue, but upside inflationary risks may slow the disinflation process. We expect inflation to fall to 4.8% by yearend. Our preliminary estimate for February’s CPI, to be released on March 7, is between 1.1% and 1.2%, leading annual inflation to fall to 7.9%.