Peru | After six months, core inflation returns to the target range in August

July inflation was 0.28% m/m. The result is explained by the increase in the prices of some foods, especially poultry products and tubers, which was explained by supply factors. With this result, the interannual inflation rate stood at 2.0% in August.

Key points

• Key points:
• The component of the consumer basket that excludes food and energy, a more trend measure of the pace at which prices advance, increased 0.01% m/m in August. Thus, in year-on-year terms, this inflation indicator stood at 2.8%, a rate compatible with the target range.
• August data confirm that inflation is consolidating around the center of the target range.
• In the fourth quarter, however, the year-on-year comparison base will be unfavorable, so, although inflation will end the year within the target range, we continue to forecast that it will do so somewhat above 2.5% year-on-year.
• With inflation (total and now also underlying) and inflation expectations within the target range, and with markets anticipating that the FED will begin to cut its rate this month, the most likely scenario is that the Central Bank of Peru will return to lower its reference interest rate by 25bps next week, to 5.25%, if exchange rate pressures remain limited.

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