Inflation would return to the target range in 2022

Although this year annual inflation in Peru would be temporarily above the target range of the Central Reserve Bank of Peru (BCRP) –which is 1% and 3% -, this indicator is expected to recede and return to this range in the second half of 2022, according to the Peru Situation Report of the BBVA Research.

And, despite the fact that the bank projects that annual inflation will close this year at 5.3%, the projection for 2022 is 2.3%, thus returning to the target range of the BCRP.

Hugo Perea, chief economist at BBVA Research, explained that although 12-month inflation rates between 4.5% and 5% would be observed until the first half of next year, these figures would be decreasing during the second half of 2022, since the international input prices would be corrected downward.

“In an environment of lower exchange rate pressures, a downward correction of agricultural commodities and to a lesser extent also of fuels (…) we think that inflation will finally converge towards the second half of next year to the target range ”, noted the economist at BBVA Research.

This also coincides Claudia Sícoli, Director of the Economics and International Business School of the UPC, who details that the future prices of some commodities are falling and it is due to this argument that the BCRP projects that annual inflation in 2022 will close at 2.6%.

“What is being registered is a sharp drop in corn, iron and even oil, because they are starting to sell with lower future prices. The trend is for it to be downward and this will begin to be reflected in consumer products, “added Sícoli.

The president of the BCRP, Julio Velarde, said at the time that the prices of commodities such as wheat, soybean oil and iron had begun to correct.

International prices have an influence on the products of the family basket. Wheat is the main input for bread and noodles, as well as corn and soybeans are used to feed chicken and soybean oil is the main input for vegetable oil.

Expectations

The latest BCRP survey showed that companies in the non-financial sector and economic analysts predict that inflation for 2022 will be at 3%, while the financial system expects it to be at 3.5%.

Reference rate

Regarding monetary policy, BBVA Research projects that the benchmark interest rate would reach a level of 2% by the end of the year and rise to 3% before the end of the third quarter of 2022.

For his part, Sícoli estimates that the BCRP would not raise the reference rate in the short term.

Private investment would fall 9.7% in 2022

BBVA Research forecasts that private investment will grow 31.7% this year, but would register a decline of 9.7% in 2022, due to the weakening of business expectations.

The entity also raised its GDP growth estimate to 12.2% for 2021, but reduced performance for 2022 from 4.3% to 2.3%.