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Inflation surprised to the downside, but it remains pressured

Juan Carlos Barboza & Diego Ciongo


While the CPI for January registered a downside surprise (0.23% versus Bloomberg market consensus of 0.51% and broadly in line with our forecast of 0.26%), the figure was still above a 5-year median inflation of 0.07% and 0.04% a year ago. The bulk of the upside pressure came from food prices (contribution of 16 bp) due to supply disruptions generated by the protests. Restaurants & hotels (9 bp) also exerted relevant pressure, while transportation CPI fell by 0.90% mom (a negative contribution of 11 bp) reflecting a seasonal reduction in air and bus tariffs after holidays and lower energy prices. On an annual basis, headline inflation rebounded to 8.66% yoy in January (from 8.46% in December), while core inflation (excluding energy and food items) increased to 5.80% (from 5.59%).

At the margin, headline inflation also increased in January. The seasonally adjusted three-month annualized variation of the CPI came in at 7.10% in January (from 7.05% in December), while core inflation (excluding food and energy items) fell to 3.99% (from 4.96%).

We now expect the central bank to hike its policy rate by 25-bp one more time (reaching a level of 8.00%) given still pressured CPI and the uncertainty surrounding the protests which are having an effect on inflation (our end of year inflation forecast of 3.7% has also an upward bias).

Julio Ruiz