Peru | Inflation moderated in July, but continues to surprise on the upside

The Consumer Price Index of the city of Lima increased 0.94% MoM in July. The result was mainly explained by the rise in transport and food prices. In year-on-year terms, inflation moderated slightly compared to the previous month, standing at 8.74% (June: 8.81%).

Key points

• Key points:
• Inflation excluding food and energy, a more trend-oriented measure of price changes, also accelerated: it went from 4.95% year-on-year in June to 5.44% in July.
• Going forward, it is anticipated that the moderation of year-on-year inflation will be slow, despite the fact that food prices have been correcting downwards in recent weeks.
• There are other factors that would explain why inflation has not subsided, in particular the de-anchoring of expectations, which are above 5.0%, the context of global supply chains that have not yet fully normalized, and problems with interest rates. of used fertilizers and their availability, which could affect the supply of food and its prices during 2023.
• In this context, we forecast that inflation will close this year at 6.8% and that it will only return to within the Central Bank's target range (inflation between 1.0% and 3.0%) in 2024.
• Regarding monetary policy, the Central Bank will continue to raise the reference interest rate in the short term and this year it will reach a maximum that could exceed 7.0%.

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