Higher-Than-Expected Inflation in Peru

Headline inflation climbed in January by 0.38% m/m (consensus, 0.35% m/m; RGE, 0.28% m/m), led by significant gains in housing and food costs. The sharp increase in housing costs (1.86% m/m from 0.19% m/m) comes as a result of revised electricity tariffs and potable water, and higher cooking gas prices resulting from adjustments in refineries during December. Fruits, edible oils, bread and some grain prices affected the food component of the index, which recovered from four months of negative monthly inflation, printing a positive 0.52% m/m in January 2011. Other goods and services also accelerated, driven by hotel lodging and personal items. Transport, apparel and health-care prices decelerated.

Figure 1: Peru’s Lima CPI (% m/m)


In yearly terms, the Lima CPI has gained 2.17% y/y, still within the central bank’s (BCRP) target range, although accelerating from 2.08% y/y last month.

Figure 2: Peru’s Inflation and Target Range (y/y)


Source: INEI, BCRP and RGE

Peru’s inflation dynamics are consistent with RGE’s expectations of pressures stemming from food and energy prices as well as above-potential growth. We expect the central bank to remain alert and bring the reference rate to 4-4.25% by the end of the year. For 2011, we anticipate inflation continuing to rise, hovering around the upper boundary at 2.9% y/y; however, the risk is to the upside.

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients:LatAm Focus: Brazil Needs Fiscal Tightening ASAP