Peru. Inflation stays above the target, but we expect this to be only transitory

Summary

The consumer price index fell 0,15% in November, reflecting the decline in food, fuel, and electricity. With this, YoY inflation rose to 3,2%, above the Central Bank’s target range. However, measures that are more closely related to the inflationary trend, such as inflation excluding food and fuels, show that demand pressures on prices keep moderating, something which is consistent with output´s weakness. In this context, we believe that inflation will tend to move into the target range since the beginning of 2015. Hence, in terms of the inflation outlook, we see room for a policy rate cut in the short-term, perhaps as early as December. This would complement the effort that is being done on the fiscal front in order to support economic activity and enhance the message of an aggressive stimulus from policymakers, thus favoring economic agents’ confidence.

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