IPE: March ends with lowest inflation in 34 months | Economy

Inflation will be 2.95% in the first quarter of 2024, the lowest figure in 34 months (since May 2021). As a result, Peru has one of the lowest inflation rates in the region. Also, despite having one of the most 'strict' target limits in the region, it is one of the few that meet its target limit (between 1% and 3%).

Return to target

Minor inflammation After a strong increase in 2023 due to social conflicts, heavy rains and temperature changes, prices of various food items are due for progressive normalization. For example, the retail price of chicken in Lima was S/11.30 in the last week of March 2024 (a 14% decrease), after exceeding S/13.00 per kilo in April last year. Likewise, the price of lemons, one of the crops most affected by Cyclone Yaku, has dropped by almost 40% from an average of S/6.43 per kg in March 2023 to S/3.91 in the same month of 2024.

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It is important to clarify that inflammation This does not mean that prices will recover to their pre-pandemic levels. Over the past four years, the average price of the INEI underlying basket has accumulated more than 20%. However, a return to the target range is a good sign that the long-term bull run is coming to an end. Thus, one inflammation Once back in control, it will allow us to better plan for the future.

Money is the answer

In the second quarter, weather shocks that have repeatedly affected the prices of some perishable foods in March will reverse, leading to further declines in both. inflammation as well as expectations of its evolution over the next 12 months.

In this situation, as happened in previous chapters, the PCR It will find more room to continue lowering its reference rate, making its monetary policy stance more flexible. Hence, according to research conducted by the firm, economic analysts and the financial system expect rate cuts of 175 basis points for the rest of the year, taking the policy rate to 4.50% in 2024.

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Risks and Implications

Although IPE expects inflammation There are persistent global risks that could change this outcome, with growth expected to remain below 3.0% in the coming quarters and end at 2.6% in 2024. More climate disruptions in the Panama Canal, as well as escalating geopolitical conflicts in Europe and the Middle East, will create new pressures on logistics chains and trigger higher grain and fuel prices. An example that illustrates these risks is oil prices, which have risen 15% so far this year. If the situation continues, the impact on the boy can be reversed. inflammation Annual decline in fuel prices in Peru since March 2023. Another important factor is exchange rate fluctuations, both external factors (changes in US monetary policy) and internal factors (for example, AFP withdrawal).

In the absence of these risks, significant moderation inflammation Consumer expectations in 2024 will help consolidate the recovery shown since the beginning of the year. After the adverse shocks of 2022 and 2023, household confidence in the household's economic situation over the next 12 months has reached levels not recorded before the pandemic. This will favor more buoyancy in consumption, mainly in the second half of the year.

Independence of BCR

It is important to point out that after three years of continuous adverse shocks, a good portion of the results were recorded inflammation It has been a solid management of monetary policy to date PCR. Its autonomy has allowed Peru to amass 27 consecutive years of single-digit inflation, surpassing other South American economies with their own currencies and explicit inflation targets such as Chile, Colombia and Brazil.