Itaú BBA - PERU – Low inflation in February

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PERU – Low inflation in February

Março 2, 2020

Annual headline inflation stood below the central bank target for the sixth month in a row

CPI was broadly in line with market expectations in February. CPI posted a month-over-month rate of 0.14% (from 0.13% a year ago), above our forecast of 0.08% and broadly in line with market expectations of 0.15% (as per Bloomberg). The monthly figure was pressured mainly by an upward adjustment in the excise tax to cigarettes and a seasonal increase in agro prices, while a fall in electricity tariffs exerted downward pressure.  

On an annual basis, headline inflation stood below the central bank target (2%) for the sixth month in a row. Annual headline inflation stood at 1.90% in February  (from 1.89% in January), while core inflation (excluding energy and food items) stood at 2.34% in February (from 2.31% in January). The indicator that tracks the percentage of items with annual inflation above the 2% target stood at 26.4% in February (from 24.5% January). The diffusion index shows low inflation across a broad range of goods and services.

At the margin, headline inflation slowed down, while core inflation accelerated. The seasonally-adjusted three-month annualized variation of the CPI was 1.48% in February (from 1.96% in January), while core inflation (excluding food and energy) stood at 2.74% (from 2.64%). The acceleration in core inflation is associated to the increase in the cigarettes excise tax.

We expect inflation at 2.0% by the end of 2020. The widening of the output gap keeps inflation subdued, supporting – together with rising risks for global economic activity - the BCRP delivering additional rate cuts. 


Julio Ruiz



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