Itaú BBA - PERU – Inflation decelerated in March

Macro Latam

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PERU – Inflation decelerated in March

Abril 1, 2020

Headline inflation was dragged by a sharp fall in core inflation

CPI was slightly above market expectations in March. CPI posted a month-over-month rate of 0.65% (from 0.72% a year ago), below our forecast of 0.79% and above market expectations of 0.60% (as per Bloomberg). The monthly figure reflected a seasonal increase in education prices associated to the start of the school year and an increase in some fruits and vegetables.

On an annual basis, headline inflation was dragged by a sharp fall in core inflation. Annual headline inflation stood at 1.82% in March  (from 1.90% in February). On the one hand,  food and beverage prices increased  2.02% year-over-year in March (from 1.35% in February), possibly associated to higher demand in a context of uncertainty over the effects of coronavirus outbreak on supply. In contrast,  core inflation (excluding energy and food items) decelerated sharply to 1.73% year-over- year (from 2.34%).

At the margin, headline inflation also slowed down, with core inflation falling sharply. The seasonally-adjusted three-month annualized variation of the CPI was 1.43% in March (from 1.49% in February), while core inflation (excluding food and energy) decelerated sharply to 0.67% (2.73%).

The sharp deceleration in core inflation puts downside risk to our inflation forecast of 2.1% end of 2020. The widening of slack conditions will curb inflation, offsetting pressures to inflation from the currency depreciation.

Julio Ruiz

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