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Inflationary pressures at the margin show no sign of easing.

Vittorio Peretti & Carolina Monzón


Consumer prices increased above market expectations at the close of last year, with food prices once again a key pull (2.7% mom; 52bp contribution). Consumer prices increased 1.26% from November to December (0.73% a year earlier), above the Bloomberg market consensus of 0.9% and our 1.0% call. Restaurants and hotels (+26bps) along with transport (+16bps) were also key drivers to price dynamics in the month. The bulk of the surprise to us came from hotels and restaurants. Inflationary pressures remain widespread with core prices (excluding food and energy goods) increasing 0.90% from November (0.33% in December 2021). In annual terms, inflation rose to 13.12% in December from 12.53% in November, while core inflation rose from 8.61% to 9.23%, well above the upper bound (4%) of the central bank’s range around the 3% target. The Central Bank's 2022 yearend inflation forecast in the most recent IPoM (October) was 11.3%, leaving today's print with a +1.8pp surprise through to the end of the year. With inflation yet to peak, inflation expectations still on the up, and large twin deficits present, we expect the central bank to continue to hike rates later this month from the current 12% with 50bp likely to be the minimum.

Inflationary pressures at the margin show no sign of easing.Non-durable goods inflation (mainly food) rose to 22.21% yoy from 21.67% in the previous month. Meanwhile, energy prices posted some relief, falling 79bps to 17.88%. Services inflation rose from 6.87% to 7.35%, while durable goods inflation rose from 95bps to 16.10%. At the margin, we estimate that inflation accumulated in the quarter was 13.7% (annualized), in line with 3Q22. Meanwhile, core inflation sits at 9.7% (annualized), accelerating from 9.4% in 3Q22 and 8.7% in 2Q22.

Looking ahead, increased inertia and a swifter fuel price adjustment would keep inflation pressures elevated.Despite the expected domestic demand slowdown, inflation will likely fall slowly, ending the year above our 8% call.

Vittorio Peretti

Carolina Monzón