BCRP: July inflation would be higher than previous months

After the monthly inflation rate had been falling in recent months, to such an extent that last June a variation of -0.15% was registered, a change in trend is expected for July, reaching a higher figure to that of previous months.

Adrián Armas, central manager of Economic Studies of the Central Reserve Bank of Peru (BCRP), explained that due to seasonal factors, July is the month with the highest inflation rate, driven by the rise that would be observed in the transport sector. In addition, the payment of the gratuity that is given this month would cause a greater demand for food, which would also raise the consumer price index (CPI).

“The monthly rate for July is typically going to be higher. Looking at the initial data, there has also been an increase in the price of chicken meat, so the inflation rate in the month of July is going to be somewhat higher than expected.” that we have seen in the last two months”, pointed out the official during the presentation of the Monetary Program July 2023.

In this sense, he stressed that there has been an increase in the price of chicken. According to the Supply and Price Information System (SISAP) of the Ministry of Agrarian Development and Irrigation, the price of eviscerated chicken in Retail Markets was S/10.52.

However, despite this increase in inflation in July, since the BCRP They assured that the interannual rate of this indicator -which is currently at 6.46% as of June- will continue to decline.

In this way, by the end of 2023 inflation is expected to be at 3.3% and return to the target range of between 1% and 3% at the beginning of next year. This is due to the moderation of the effect of international food and energy prices, as well as the reversal of supply shocks in the agricultural sector. However, they acknowledge that “there are risks associated with climatic factors.”

Impact of El Niño

Among the risks foreseen by the BCRP in terms of its inflation projections are natural phenomena such as El Niño Global, which has been considered a weak scenario.

However, if the El Niño phenomenon is more intense, it would cause year-on-year inflation to fall more slowly.

In the opinion of the official of the issuing entity, a more intense natural phenomenon in our country could generate a more cautious attitude on the part of some crop producers, which would be affected and would imply a lower supply of products. Likewise, droughts would have an impact on crop yields.

“That could mean that inflation does not drop as fast as expected, but the scenario, even with a more intense El Niño, is that inflation will continue to drop, because we have already reached the high levels”, narrowed.

Despite this, Armas mentioned that due to a 49% drop in the price of urea in the first half, food prices should also drop, as they should reflect lower fertilizer costs.

Peruvian economy reportedly fell in May

The National Institute of Statistics and Informatics (INEI) revealed today the data on the GDP for May, however, the BCRP anticipates that the result would be negative, according to the advanced macroeconomic indicators.

According to the official, the primary sector would have a significant drop in the month of May as a result of the cancellation of the first anchovy fishing season and the effects of El Niño Global.

“What has been seen is that there is a strong contraction in fishing production, unfortunately, and we will continue to monitor that (…) The production of fishing, of anchovy, is even less than what was already expected and that is going affect the month of May,” said Armas.

The word

Adrián Armas, Central Manager of Economic Studies of the BCRP

“Due to seasonal factors, there is a higher inflation rate in the month of July, especially in the transport sector, for the gratuities there is also greater demand for food.”