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Inflation will return this year to its pre-COVID-19 level

Inflation will return this year to its pre-COVID-19 level

After 2020, inflation climbed to a peak of 8.46%, its highest level in just over two decades, and only four years after the pandemic is it expected to normalize and close at 2.2%, according to the Bank Central Reserve Bank of Peru (BCRP).

What do we call regularized inflation? It is when the Consumer Price Index (CPI) oscillates between 1% and 3%, the target range established by the issuing entity. As well as the BCRP, various fronts such as BBVA Research and Credicorp Capital estimate that the CPI will adjust to close to 2.0% (see infographic).

The reasons behind the fall in inflation

Julio Velarde, president of the BCRP, commented that Peru remains one of the countries with the lowest inflation at the regional level, even having the lowest reference interest rate — which rose to a historic 7.75% and is now at 6. .25%—.

Thus, for the current they expect it to reach 2.2% due to the lower incidence of weather phenomena, such as El Niño, on food prices.

Velarde emphasizes that the rebound in February responds to temporary events such as the increase in drinking water rates or chicken prices in the face of heat waves, considering that in January the upper limit of the target range (3.01%) had already been reached. but towards the second month it rose to 3.3%.

On the other hand, BBVA Research points out that inflation will take on a decreasing trend because there will be no demand pressure on prices either, since economic activity begins to gradually recover.

Furthermore, when compared year-on-year with a higher base and the lag of climatological threats, the CPI would reach 2.6% this year; and for the next one they expect inflation to fall to 2.4%.

Regarding inflation only for food and energy, the ratio is 3.52%, and has continued to decline after reaching double digits and even surpassing the general CPI rate in the middle of last year. “We are confident that the target range will be reached this year,” said Velarde in general terms.

So will prices drop suddenly?

No. The economist and director of Phase Consultores, Juan Carlos Odar, explains that lower inflation should be understood as a lower rate of price increases. It is not that from one moment to the next the kilo of potatoes or chicken will lose a few soles.

“During the pandemic we had low inflation and only later, in 2021, did it begin to grow and we reached outside the (target) range,” he comments for La República Odar. In addition, he said he believes that prices will continue to rise, but inflation will close the current at 2.4% and has a downward bias.

Although, he warned that having inflation above 2% reflects that there was still exposure to supply shocks as seen in the unforeseen inflationary spike in February.

In Odar’s opinion, the delay in the correction of the reference rate of the United States Federal Reserve (Fed) will also help keep inflation low; Adding to this the standardization of inputs and foods such as cereals, soy and wheat. On the part of BBVA Research, it is expected that the reduction in the reference rate will be limited and thus avoid exacerbating pressures on the exchange rate.

Chicken is still expensive: it does not go below S/11.50

According to the Supply and Price System of the Ministry of Agrarian Development (Midagri), the kilo of chicken went from S/10.38 in January to S/12.05 in the retail markets – read the closest and most influential for the home economics.

Since the second half of 2023, the price of the bird skyrocketed and moved away from S/7.00.

In markets such as Aurora, Limoncillo and El Bosque, the bird does not go below S/11.50, La República was able to confirm. Meanwhile, the egg ranges between S/8.60 and S/9.50 per kilo.

Source: Larepublica

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