Macro Latam
< VoltarCPI for February surprised to the upside, while core inflation was broadly in line with market expectations. Consumer prices increased 0.42% month-over-month in February (from -0.03% a year ago), above our forecast of 0.30% and market expectations (as per Bloomberg). In turn, core CPI stood at 0.36% month-over month (from 0.43% a year ago), close to our forecast of 0.38% and market expectations of 0.37%. Headline inflation upside surprise was driven mainly by non-core fruits and vegetables inflation.
Annual headline inflation accelerated, while core inflation slowed down. Headline inflation stood at 3.70% year-over-year in February (from 3.24% in January), pressured by an unfavorable base effect (lower monthly inflation in first two months of 2019 due to lower VAT in northern frontier) and non-core fruits and vegetables prices (11.2% year-over-year in February, from -1.76% in January). In contrast, core inflation decelerated slightly to 3.66% year-over-year in February (from 3.73% in January), with tradables and services inflation slowing down to 3.82% (from 3.92%) and 3.48% (from 3.51%), respectively. We note other core services CPI, an indicator closely related to domestic demand, decelerated to 3.72% (from 3.78%).
At the margin, core inflation decelerated further. Using seasonally adjusted three-month annualized figures, headline inflation stood at 3.94% in February (from 3.87% in January), while core CPI slowed down to 3.34% (from 3.59%). The diffusion index, which tracks the percentage of items in the CPI basket with annual inflation higher or equal to four, was broadly unchanged at 40.8% in February.
We expect inflation for 2020 at 3.2%. We note the rebound in annual inflation will fade away in March as the unfavorable base effect disappears. Looking further ahead, a widening output gap will likely contribute to curb inflationary pressures.
Julio Ruiz