Consumer prices rose by 0.24% from November to December, essentially in line with the Bloomberg median of 0.22%, following four consecutive downside surprises. The reading was primarily boosted by a 1.6% seasonal increase in transport, while price increases in other CPI categories were contained. Core inflation, which excludes volatile food and energy components, rose 0.45% month‑over‑month.
Sequential price pressures remain contained. Headline inflation on an annual basis increased by 13 basis points to 1.5%, in line with our year‑end forecast. The CPI has remained below the midpoint of the Central Bank’s target range of 2% ± 1.0% since November 2024. Sequentially, headline inflation reached 2.1% QoQ/SAAR. Core inflation rose by 7 basis points to 1.8% year‑over‑year—near a four‑year low—and sequentially matched a similar rate of 2.1% QoQ/SAAR. Importantly, survey‑based one‑year inflation expectations have remained anchored within the target range since December 2023, standing at 1.9% in November.
Our take: We expect inflation to gradually edge up in 2026 and converge toward 2%, the center of the BCRP’s target range, while inflation expectations remain firmly anchored. Favorable exchange‑rate dynamics and low oil prices pose downside risks, however. We believe the Central Bank is now in the fine‑tuning stage of the cycle and that the BCRP is likely to hold the policy rate at 4.25% next week, before delivering a final 25 bp cut at the end of the quarter.
