Inflation rose by 0.11% MoM in May (from 0.40% a year ago and a 5-year median of 0.38%). The print was below our forecast and market expectations according to the BCU’s survey (0.26% MoM and 0.29% MoM, respectively). Notably, this is the second consecutive downside inflation surprise with respect to market consensus. The main monthly impact in May came from housing (0.26% MoM, incidence of 0.03p.p) due to increases in construction services and residential taxes in Montevideo. Moreover, restaurants and hotels rose by 0.66% MoM with an incidence of 0.06p.p, due to higher cafes and restaurants prices. On the other hand, transport prices fell by 0.55% MoM (incidence of -0.06p.p) due to lower cars and truck prices (-1.49% MoM), diesel prices (-1.49% MoM) and lower airline tickets (-3.91% MoM). Core inflation (excluding fruits & vegetables and fuel prices) increased by 0.22% MoM, from 0.15% MoM in May 2024. On an annual basis, headline inflation fell to 5.05% in May (from 5.36% in April), while core inflation rose to 5.77% from 5.70% in the previous month. We note both readings remain within the Central Bank's inflation tolerance target of 4.5% +/- 1.5%.
At the margin, headline inflation decelerated, while the core reading accelerated in May. Using our own seasonally adjusted figures, the three-month annualized headline inflation fell to 3.9% in May (down from 4.1% in April), while core inflation was 4.8% (up from 2.9% in the previous month).
Our CPI heatmap shows that 38% of selected items are below the center of the central bank’s target (4.5%), the same as April but above the December 2024 figures (15%).
Our take: We recently revised our YE25 inflation forecast down to 5.1% (from 5.5%), due to lower-than-expected inflation prints, a stronger UYU, and lower oil prices. June's CPI will be released on July 3, and the next monetary policy meeting is scheduled for July 8. We expect the BCU to maintain the policy rate at 9.25% for the rest of the year.