- Peru: Headline and core inflation continued to decline in January
After global markets opened the week with a bang on the weekend’s tariffs announcements, quieter trading has taken hold today after a measured Chinese response to US tariffs, while we continue to watch for trade headlines (maybe now it’s the EU in focus for Trump) and await the release of US job openings data at 10ET. The Latam day ahead will give us the results of the latest Banxico survey of economists at 10ET as well as the presentation of BanRep’s monetary policy report on the Colombian economy. There were no key data out in Asia nor Europe to shape prices and we think volatile job openings data should be of secondary concern for markets that are trading at the whim of White House announcements.
In retaliation to the US’s 10% additional tariff on Chinese goods effective today, China has unveiled a 10% additional charge on roughly USD10bn of US oil and agricultural equipment and a 5% additional duty on roughly USD5bn of US coal and LNG, as well as targeted measures on some US companies and restrictions on critical metals exports (namely tungsten). China’s restrained response package was but a scratch for global risk sentiment as US equity futures track unchanged on the day (slightly dipped on the announcement but then came back) while cash European indices sit mixed with Euro Stoxx and FTSE up and down, respectively, about 0.5%.
Currencies are mixed, with the MXN lagging all majors with a 0.5% drop after its outperformance yesterday (+1.5%) on the one-month tariffs pause, but unlike the MXN the CAD is also stronger today (about 0.5%) as it catches up to the peso’s gains on Canada’s own tariffs pause. The JPY, on an improved risk mood and a rise in US yields, is the day’s second worst performer, down 0.3%. Like USTs, gilts and EGBs are trading cheaper on the day but while US yields rise by 1–2bps, German and UK yields are 3–5bps higher. Though currencies and equities are calm on the China news, crude oil is off about 3% in anticipation of reduced Chinese demand but iron ore and copper prices are flat to slightly bid.
—Juan Manuel Herrera
PERU: HEADLINE AND CORE INFLATION CONTINUED TO DECLINE IN JANUARY
Peruvian price growth was negative in January, reducing the annual rate of inflation from 2.0% to 1.9%. This trend is expected to continue during Q1-25, reaching levels of around 1.5% due to a high base effect that would be partly offset by the price correction of some products. We maintain our forecast of 2.3% inflation for end-2025 and a 4.50% terminal reference policy rate.
Headline inflation was -0.09% month-on-month in January, in contrast to the +0.05% expected by the Bloomberg median and the historical average of the last 20 years (+0.20%). As a result, annual inflation slowed from 2.0% at the end of 2024 to 1.9% in January, below the midpoint of the Central Reserve Bank’s (BCRP) target range. Thus, inflation has remained within the target range for 10 consecutive months (chart 1).
Core prices, the trend component that excludes food and energy, fell by -0.15% m/m, being more negative than the historical average of the last 20 years (-0.03%). In year-on-year terms, core inflation decreased from 2.6% recorded at the end of 2024 to 2.4% in January. The BCRP sees core inflation at the midpoint of the target range (2.0%) as ideal, but controlling overall inflation within the target range is a higher priority.
The reduction in headline inflation during the month is explained by lower prices for chicken (-10.5%) due to increased supply, as well as lower prices for national air transport fares (-21.5%), interprovincial transport fares (-15.4%), and taxi fares (-1.8%), which corrected after the holidays for the end of the year. The drop in chicken prices is significant, given that it is the product with the greatest weight in the basic consumer basket and if its price had been maintained, monthly inflation would have been between 0.3% and 0.4%.
At the end of Q1-25, headline inflation would be around 1.5%, given that there is a high base effect in February and March, the only months of 2024 that had a reading well above the historical average of the last 20 years. This would be offset by products that are at low levels and should correct, as is the case of chicken (the most important product in the basic consumer basket), due to the fact that it had a significant drop in January. Additionally, the international price of corn has been recovering since the beginning of November. We are also seeing the base effect on the side of underlying inflation and during the next few months it would converge to the midpoint of the target range (2.0%), and could even be located below it.
Regarding Trump’s economic policies, there is greater risk in the world, which leads us to maintain our projections with a neutral bias (previously the bias was downward). We maintain our forecast of 2.3% inflation for end-2025, given that we expect greater price pressures during H2-25. Regarding the BCRP reference rate, we expect that at the next meeting on February 13th the board will keep its rate unchanged at 4.75%. We maintain our base scenario of a 4.50% terminal rate, which would be reached during Q2-25 (chart 2).
—Ricardo Avila
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