CPI rose 0.38% mom in August (from 0.67% a year ago), above our 0.17% forecast and market consensus of 0.24% (as per Bloomberg). Most of the upside pressure came from the food and nonalcoholic beverages index (contribution of 12-bp) and the transportation index (contribution of 21-bp), with the latter associated to a rebound in fuel prices. On an annual basis, headline inflation fell to 5.58% in August (from 5.88% in July), while core inflation (excluding energy and food items) stood at a low 3.81% (from 3.89%).
At the margin, headline and core inflation remained inside the central bank's target range of 2+/-1%. The seasonally adjusted three-month annualized variation of the CPI came in at 1.36% in August (from 1.73% in July), while core inflation (excluding food and energy items) stood at 2.36% (from 2.00%).
In our view, despite the upside surprise in August’s CPI, lower inflation (our 2023 yearend forecast is at 3.8%) and weak activity will likely prompt the central bank to start cutting rates in September with a 25-bp rate cut pace. We expect the yearend policy rate at 6.75%.