Peru | Inflation surprised to the downside in February

In February, the Consumer Price Index decreased 0.13% MoM, surprising the market consensus to the downside (+0.20%). The result is explained, mainly, by the decrease in the prices of some foods. Headline inflation in year-on-year terms fell to 2.4% in February and inflation excluding food and energy to 1.6%.

Key points

• Key points:
• During the month, the fall in food prices stood out, in some cases moving back to normal after the increases registered in previous months, in line with our expectations.
• Inflation excluding the Food and Energy components fell from 1.7% in January 2021 to 1.6% in February, remaining below 2.0% for almost a year now.
• In our baseline forecast scenario, inflation will close the year around 2%. This forecast considers that demand-side inflationary pressures will remain contained. It also assumes that the local currency will tend to strengthen in 2021, after the general elections.
• The risks to this forecast are mainly upside, considering the recent behavior of the international prices of fuels and food supplies.
• However, even if some of these upside risks materialize, particularly higher commodity prices, we estimate that the Central Bank of Peru has room to maintain its policy rate at 0.25% until at least the end of the year. Thus, it will continue to support the normalization of activity provided inflation excluding food and energy and inflation expectations remain contained.

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