BCRP forecasts that inflation will close the year above the range at 3.3%

This year, the economy will grow less than expected and households will continue to spend more to survive, according to the recent projections of the June inflation report from the Central Reserve Bank of Peru (BCRP).

In terms of inflation, the entity increased its annual figure from 3.0% to 3.3% after the climatic emergency of Cyclone Yaku and El Niño Costero, as well as avian flu, which obstructed the production and supply of markets in various regions.

Julio Velarde, president of the BCRP, now forecasts that inflation will fall below the target range —set between 1% and 3%— only in the first months of 2024. Thus, considering the latest inflation data after the pandemic, we are headed for a third year far from target range. The banker assured that for this month “a significant correction” is expected for chicken prices and, with respect to eggs, “fully” it will be corrected this year, although it may take a little longer.

Thus, comparing ourselves at a global level, Peruvian subjacent inflation —that is, without counting food and energy prices— currently stands at 5.1%, an amount lower than that registered in Mexico (5.8%), Colombia (10, 5%), Chile (7.9%), Germany (5.8%), the United States (5.3%) and the United Kingdom (6.8%).

However, he recalled that this inflationary phenomenon is global and, therefore, we should not fall into triumphalist speeches because “to the misfortune of many, consolation for fools”, considering that energy and food inflation skyrocketed 11.3% to may.

deterioration in homes

Velarde said that “inflation close to zero and even negative” is expected for June, which will help the prices of the basic basket to normalize. However, the economist Armando Mendoza warns that the stagnation or deterioration of family economies will continue to prevail, considering that By 2022, approximately 15% of real income was lost compared to the pre-pandemic level.

“If you see the glass half full, you will say that prices are stabilizing in some items, but in some cases they are stabilizing at high levels. We are slowly coming back because we are already three years without meeting the target range and, each time we do not meet , the purchasing power of the population is affected,” he told La República.

Regarding interest rates to curb inflation —stagnant at 7.75%—, Velarde acknowledged that their decline will take time because it responds to factors that sometimes escape one, in reference to the policies of the United States Federal Reserve (Fed).

Mendoza affirmed that the reference interest rate, despite seeking to discourage consumption, here is more “double-edged weapon” because in recent years we have seen a strong level of speculative activity in areas such as food, fuel, transportation, and inputs for agriculture. This phenomenon corresponds more to inflation by costs than by demand. In the absence of political stability, the effect of the rates would not be as expected.

stagnant economy

Velarde announced a further reduction in the GDP, from 2.6% to 2.2%. For what reasons? It is estimated that fishing will end the year with a drop of 15.0%, mainly due to the anchovy ban. Manufacturing, for its part, would have zero growth and agriculture, a negligible 0.4% (see infographic). “The blow to private growth was fundamentally due to the protests, but also due to the weather problems in March,” Velarde noted.

Finally, Mendoza considered that growth close to 2% would be “a success”, although it would not imply a substantial change, so we cannot expect job creation and poverty reduction to prosper.

The data

Expectation. The BCRP expects commodity prices (oil, wheat, corn, and soybean oil) to continue moderating, although they would continue to be above previous years.

Balance. He trade surplus in 2023 it would be US$14.3 billion and by 2024, US$15.7 billion.

Private investment plummets

Private investment will fall 2.5% this year, with a slight recovery during the second semester in a scenario of gradual reactivation of business confidence, according to Julio Velarde, head of the BCRP.

In a disaggregated manner, mining investment is now expected to fall 18.9% and non-mining investment, 0.5%. Velarde He highlighted a slight recovery in mining investment thanks to some projects such as Zafranal, which is still in the portfolio and is expected to start in September. In 2024, private investment would grow 1.8%.

On the other hand, Velarde pointed out that the growth projection of public investment for this year is 1.5% thanks to the 17.8% rise in investment of the National government and a contraction of 4.1% in subnational governments.

reactions

Julio Velarde, president of the BCRP

“Regarding El Niño, we expect an impact of 0.5% of GDP. You will feel stronger in the fourth trimester. For next year we expect one of 0.6%. The most destructive element has already occurred.”

Armando Mendoza, economist

“We are slowly returning (to the target range) because we have already gone three years without meeting the target range And, every time we don’t comply, the purchasing power of the population is affected”.