CPI rose by 0.4% MoM in February (from 0% a year ago), below our forecast (0.7%) and market consensus (0.5%), according to the BCP survey. Inflation dynamics in the month were mainly driven by higher fuel and services prices, with a significant impact from the annual adjustment in education. Fuel prices rose by 3.5% MoM and had the largest impact on monthly inflation, while education increased 4.7% MoM, due to increases in tuition and fees were recorded at all levels. On the other hand, legumes fell by 5.9% MoM. Core CPI x1 (excludes fruits and vegetables, regulated service prices and fuel) increased by 0.44% (from 0.38% a year ago). On an annual basis, headline inflation rose to 4.3% in February (up from 3.8% in January), while the core X1 CPI stood at 5.0%. We note that both the headline and the core remain within the tolerance band of the BCP’s inflation target (3.5% +/- 2%).
At the margin, headline inflation accelerated, while core inflation decelerated in February. Using our own seasonally adjusted figures, the three-month annualized headline inflation reading rose to 6.1% in February (from 4.9% in January), while core inflation fell to 6.2% (from 8.4% in the previous month).
Our heat map shows that 42% of the items are below the central bank's revised inflation target of 3.5%, which is lower than the end-2024 data (58%).
Our take: We forecast a gradual decline in inflation to 3.5% by the end of 2025 (3.8% in 2024), in line with the middle of the central bank's target. Regarding monetary policy, our expectation that the Federal Reserve will not cut rates this year limits the scope for further easing in 2025. The next monthly monetary policy meeting will be held on March 21, while the CPI for March will see the light on April 2.