LatAm Update: Brazil Inflation Tops Expectations, Peru GDP Grows Robustly


Last Friday, IGP-10 inflation came at 1.08% m/m in February (Bloomberg consensus 0.98% m/m).  Wholesale prices (60% of the index) jumped to 1.15% m/m from 0.07% m/m in January driven by final (1.63% m/m) and intermediate goods prices (1.36% m/m), as well as industrial costs (1.5% m/m).  Agricultural prices increased to 0.08% m/m from -0.85% m/m in January. Meanwhile, consumer prices (30% of the index) increased less dramatically to 4.45% m/m from 3.99% m/m in January, lifted by higher transportation (6.49% m/m) and food and beverages prices (3.42% mm/).  Housing stayed stable at 4.52%. 

Overall, the IGP-10 reading along with other inflation measures for February continued indicating that price pressures stayed strong that month and that inflation expectations are likely to deteriorate further at the margin.   The latter should be reflected in the central bank weekly Focus report, which is closely monitored by the central bank.


Peru’s economic activity in December surprised on the upside as it grew at its fastest rate since October 2008 (9.2% y/y).  GDP posted an impressive 6.4% y/y (consensus 4.8% y/y; RGE 4.5% y/y), bringing economic activity to a 1.1% y/y average expansion in 2009.  The strong macroeconomic stimulus that supported public and private investment, together with improved global conditions (real exports up 4.8% y/y) drove GDP growth by the end of the year.  On the supply side, construction (20% y/y), financial sector (10.4% y/y) and services (10.3% y/y), in particular government services (29% y/y), came in stronger than expected and were the main drivers, while manufacturing (1.6% y/y) and retail (4.3% y/y) improved but less buoyantly.  Mining worsened (-5.7% y/y vs. -1% y/y 3MMA).

Overall, RGE maintains the view that Peru’s strong economic performance will remain in place in H1 2010 supported by a low base, improving domestic confidence and stronger global and regional economic performance. Moreover, the strong macroeconomic stimulus is likely to be withdrawn slowly.  However, slower growth in H2 2010 should be expected as the low base effect wears out (Q4 2010) and the global economy eases the pace of expansion.  In this context, RGE maintains the view that Peru’s economic activity will expand 5.1% y/y in 2010 (5% y/y to 6% y/y range).  Finally, the higher than expected growth in December is likely to have implications for growth and inflation expectations for 2010.  In the February central bank survey, consensus expects GDP to expand 4.8% y/y and inflation to be about 2.2% (same as RGE) in 2010.


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Uruguay Presidential Elections: Will There Be Continuity?