PERU – Another large upside inflation surprise in August

Increasing inflationary pressure supports the BCRP continuing with its normalization cycle

Julio Ruiz


CPI posted a month-over-month rate of 0.98% in August (from -0.11% a year ago), above our forecast of -0.01% and market expectations of 0.21% (as per Bloomberg). Upside pressure to headline inflation came mainly from higher energy (domestic gas: 6.4%), air tickets (increased demand due to the easing of social distancing measures) and food prices (1.38%) - amid a depreciation of the currency and higher international commodity prices. Food inflation was also pressured by fish prices due to lower output. Meanwhile, core inflation (exclude energy and food items) stood at 0.35% (from 0.12% a year ago). As a result, annual headline inflation accelerated to 4.95% August (from 3.81% in July) far above the upper bound of the central bank target of 2%+-1%. Likewise, core inflation (exclude energy and food items) accelerated to 2.39% in August (from 2.14% in July).

At the margin, headline and core inflation accelerated sharply. The seasonally adjusted three-month annualized variation of the CPI was 10.89% in August (from 7.52% in July), while core inflation (excluding food and energy) stood at 3.98% (from 3.36%).

​​​​​​The August figures put an upward bias to our inflation forecast of 3.6% for yearend 2021. 
Increasing inflationary pressures, amid a gradual closing of the output gap, supports our call of the central bank continuing with their normalization of its policy rate. We expect the policy rate at 1.25% for the end of this year (current level at 0.50%), but risks are shifting towards a faster policy normalization.

Julio Ruiz