Peru Imports Inflation (Calculation Ideas from Argentina)

Rampant inflation in basic foodstuffs is not a worry to the government of Alan Garcia, it seems. According to respected local newspaper “La Republica”, shoppers have seen prices for chicken rise by 11%, cooking oil by 21%, rice by 7.7%, sugar by 22% and pastas by between 13% and 20%, all in just one week. Rice, locally grown and a staple of every table in the country, has in fact risen from S/1.80 to S/.2.50 a kilo since the beginning of the year at my local market. Economy minister Carranza’s reaction to these impressive price hikes was to tell reporters on Thursday that, “The inflation theme is not one that worries us…..because it is imported inflation and because we’ve been having important gains in production and supply capacity.”

Carranza must have gone to the same school of economics as Bernanke. Now I’m no economist, but even little me understands that if the price of imported wheat goes up, locally grown rice will also suffer a similar rise. How come the highly qualified that have risen to be the controllers of a whole country’s economy manage to forget basic principles when it’s time to speak to the people?

However I get the feeling that the government is just a teensy weensy bit more worried than it tries to make out, as the minister also told reporters that the government is now studying how the local CPI inflation figures are calculated, and suggested that the weighting for food is going to drop. In his words, Food is almost 50% of total inflation. We are working with INEI (the government statistics office) on a new survey for a new index. It’s evident that the weight of food in overall inflation will fall because this is a richer country. We are ending 2007 with per capita gross GDP of about U$4000. In fact, Carranza was a bit too flexible with the figures for our liking. Food bought for home consumption makes up 35% of the inflation index, and another 12% is added by food and drink bought in restaurants. And although the GDP is climbing in some style, average employee salaries in Lima Metropolitan area rose by just 0.45% in 2007, which compares to the headline inflation figure of 3.93% in the same period. Also, we don’t suppose the 44% of people in Peru that live under the poverty line (in itself set at a low level) make it to many restaurants during the week, so the 35% home food basket does not seem so out of place in our eyes. But all the same, although the Garcia administration is not worried about inflation, they are considering changing the weighting index so that those pesky food price hikes are less important. Hmmmmmmm….

3 Responses to "Peru Imports Inflation (Calculation Ideas from Argentina)"

  1. Vitoria Saddi   January 28, 2008 at 5:00 pm

    Mark, I knew Peru was a poor country. But 44% of population under poverty line? A lot of people.So, does the government offer any type of program for the poor (like Bolsa Familia)? Or the very poor also suffer with inflation? I thought that Alan Garcia had decreased poverty and this was why S&P was going to grant investment grade for Peru.Am I wrong?

  2. Guest   January 28, 2008 at 5:35 pm

    Maybe Carranza also remind us of Lousteau, more than Bernanke, don’t you think?

  3. mark turner   January 28, 2008 at 7:47 pm

    Vitoria,It’s at least 44%. Here’s a recent news story from the decent English website “living in Peru” that explains how the gov’t is looking to lower the poverty level from 50% to 42% in 2008:,Well on looks alone, Lousteau reminds me more of Pablo Aimar when he used to play for River Plate, but that’s just me. Here’s the evidence: you be the judge :-) Carranza is more like Roubini with shorter hair ;-)