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Non-core fruits & vegetables prices exerted upward pressure.
2023/12/21 | Julio Ruiz

Headline CPI increased 0.52% bw/bw in 1H December, above our forecast of 0.37% and market consensus of 0.42% (as per Bloomberg). The upside surprise in headline inflation is explained mainly by an important pressure in non-core volatile fruits & vegetables prices (3.32% versus our call of 1.0%). Core inflation posted a biweekly rate of 0.46%, broadly in line with our forecast of 0.42% and market consensus of 0.49%. Core inflation was driven mainly by other core services inflation (1.21% versus 10-year median of 0.91%) which reflects pressure from tourism related prices (mainly airfares) and restaurant prices. Still, we note that other core services excluding the aforementioned indexes stood practically unchanged at 0.35% (from 0.32% a year ago). Core goods non-food CPI (0.49%) reflected a rebound after Black Friday's discount strategy. Annual headline inflation increased to 4.46% in 1H December (from 4.33% in 2H November) driven by the non-core index, while core inflation fell to 5.19% (from 5.30%).  At the margin, assuming bi-weekly inflation in line with the five-year median in the second half of December, the seasonally adjusted three-month annualized headline inflation stood at 5.40% in December (from 4.99% in November), while core inflation stood at 4.97% (from 5.21%).


Our take:  We expect inflation to gradually slow towards the end of next year to 4.2%, from a likely 4.5% end of 2023. While today’s main upward pressure came from volatile fruits & vegetable on the non-core index, other services inflation remains persistent, even excluding tourism related and restaurants prices indexes. In our view, today’s figure is consistent with the central bank delivering a first rate cut in March 2024. Our end of next year policy rate forecast is at 9.00%.  


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