BBVA Research: March inflation will be relatively high, but will show a marked decline

The products that reported the highest price increase were strawberries, leeks, mangoes, beets, eviscerated chicken, green beans, and dried potatoes.

Despite the fact that the year-on-year inflation rate for Metropolitan Lima dropped slightly in February, BBVA Research anticipates that monthly inflation for March will be relatively high.

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However, the bank foresees that year-on-year inflation will show a marked decrease due to a high base of comparison (in March of last year inflation was 1.5%) and could be located at levels close to 8.0%.

“Monthly inflation for the month of March will be relatively high due to seasonal factors (in the third month of the year there are the main adjustments in the prices of education services and due to the temporary reduction in the supply of some food to Lima due to rains in the mountains that generate landslides)”, explained BBVA Research analyst Hugo Vega.

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Likewise, the economist foresees that in the second quarter the downward trend of year-on-year inflation will be accentuated. In this context (beginning of a clear decline in inflation), and assuming that inflationary expectations stabilize, the Central Reserve Bank (BCR) of Peru would maintain the reference rate at 7.75% at its next meeting on March 9. .

The Metropolitan Lima Consumer Price Index (IPC) increased 0.29% in February 2023, below what was expected by the consensus of analysts (Bloomberg: 0.44%).

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The employment rate of Boys, Girls and Adolescents (NNA), between the ages of 5 and 17, who work in Peru was 25.3%, according to the INEI.

The inflation observed in the second month of the year was mainly explained by the rise in the prices of some foods (chicken and beef, as well as fruits) and by the seasonal increase in the prices of education services (adjustment for beginning of the school season).

It should be noted that the monthly rise in prices was offset by the reduction in lodging, water, gas and other fuels, as well as the decrease in residential electricity rates.

With the result of the month, the year-on-year inflation rate dropped slightly to 8.65% in February (January: 8.66%; still close to the peak it reached in June last year (8.8%).

“The renewed upward pressures observed in recent months on the prices of some foods largely explain the downward resistance,” said Yalina Crispin, an analyst at BBVA Research.

February inflation – BBVA Research

On the other hand, core inflation (which excludes food and energy prices), a more trend-based measure of the pace at which prices are moving, stood at 0.27% in February (January: 0.05%).

In year-on-year terms, this inflation indicator registered a level of 5.87%, an acceleration for the second consecutive month (5.59%) in December of last year and 5.80% in January), thus remaining above the BCR target range, and, for the moment, without signs of reversal.

According to the National Institute of Statistics and Informatics (INEI), the increase in prices in Metropolitan Lima during the second month of this year was mainly influenced by higher prices for eviscerated chicken, chicken eggs and restaurant menus, as well as the increase in prices in non-state school tuition and gasohol, which together contributed 0.327 percentage points to the result for the month; mitigated by the decrease in electricity rates and some foods such as yellow and white potatoes, bonito and strong avocado.

Inflation slows down but prices are still rising.

In the month of February 2023, of the 586 products that make up the family basket, 385 registered price increases, 103 decreased and 98 showed no change.

The products that reported the highest price increase were: strawberry (15.70%), non-state school tuition fee (15.14%), leek (12.20%), mango (11.32%), beetroot (10.80%), eviscerated chicken (10.78% ), green bean (8.35%) and dry potato (8.13%). Meanwhile, the products with lower prices were: yellow potato (-21.11%), huayro potato (-20.19%), bonito (-14.20%), white potato (-10.76%), strong avocado (-9.34% ), blueberries (-9.07%), white grapes (-8.73%) and hake (-8.63%).

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