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Another rate hike this month amid still rising inflation and unanchored inflation expectations

Vittorio Peretti & Carolina Monzón


Consumer prices increased 1.66% from January to February, leading the annual rate to tick up 3bps to 13.28%. The February print was essentially in line with the Bloomberg market consensus (1.68%), but above our 1.51% call. The surprise to us mainly came from food prices that increased 1.60% MoM (0.85% expected), partly offset by a milder seasonal education increase (8.5% MoM vs. 11.1% expectation). Consumer prices excluding food and energy goods increased 1.66% from January (1.25% in February 2022). In annual terms, inflation rose 13.28% in February from 13.25% in January, while core inflation reached double-digit terrain, increasing 44bps to 10.15%, well above the upper bound (4%) of the central bank’s target. Amid still rising inflation and unanchored inflation expectations, we expect a further rate increase later this month (+50bps to 13.25%; March 31). Following signaling from the Board that the cycle is nearing its end, we expect a long pause as significant inflation persistence and higher global rates prevent early cuts.

Services inflation remains on the up, amid significant indexation and activity levels that remain elevated. Non-durable goods inflation (mainly food) came in at 20.57% yoy (-82bps). Meanwhile, energy prices ticked up 28bps to 13bps to 18.03% (but remain below the October peak of 19.04%). Services inflation rose 55bps to 8.74% and supported the core inflation increase to 10.15% (+44bps). At the margin, we estimate that inflation accumulated in the quarter was 15.2% (annualized), up from 13.9% in 4Q22. Meanwhile, core inflation reached 13.1% (annualized), accelerating from 10.9% in 4Q22 and 9.6% in 3Q22.

Inflation is set to remain high given strong inertia and upcoming pass-through. We expect a slow disinflation process to around 8.7% by yearend 2023 (13.1% in 2022).

Vittorio Peretti

Carolina Monzón