Consumer prices would be above 3% throughout 2022

The war between Russia and Ukraine has already begun to have an impact on the local economy, especially on consumer prices.

And it is that, after in February of this year the Central Reserve Bank of Peru (BCRP) projected that inflation will return to the target range of between 1% and 3% in the fourth quarter of the current year, the international context has caused this estimate to change.

Adrián Armas, Central Manager of Economic Studies at the BCRP, indicated that, due to the significant increase in international energy and food prices so far this year, inflation is now expected to return to the target range in the middle of the first half of the year. 2023.

Precisely to contain inflation, the monetary entity raised its reference interest rate for the eighth consecutive month from 3.50% to 4%.

the impact begins

Enrique Díaz, founding partner of MC&F Consultores, explains that, due to the conflict between Russia and Ukraine, inflation would be above 3% at the end of this year.

The economist also warned that Peru is just feeling the impact on inflation, since there is still a stock acquired in previous months.

In this sense, he estimates that in the next three months an increase in basic products will be beginning to be observed. “Fuel is one of the goods that has a chain effect, it automatically influences everything that is transportation and the entire basic basket of people,” the expert noted.

Meanwhile, the inflation expectations for 2022 of the economic agents are located in a range of 3.8% to 4%, also above the target range (see infographic).

Regarding the evolution of inflation, Armas explained that the downward path of year-on-year inflation would begin in July of this year. It should be noted that 12-month inflation (March 2021-February 2022) stands at 6.15%.

international listing

The monetary entity indicated that as of March 9, WTI oil (reference for Peru) had an increase of 42.6%, wheat an increase of 39.1% and corn an advance of 26.8%.

Likewise, the BCRP pointed out that the increase in the price of manure and fertilizers has exerted additional pressure on food prices, since it affects the production costs of perishable agricultural crops.

However, Armas highlighted that these increases in international prices have been mitigated by the appreciation of the Peruvian sol (7.17% so far in 2022).

Impact on credits

The BCRP official also explained that this new increase in the reference interest rate would have an impact on very short-term financial contracts, such as three-month corporate loans or time deposits.

Reaction

Adrián Armas, BCRP official

“Inflation would no longer return to the target range by the end of this year, but would be returning to inflation of 3% or less as of the first half of next year.”