Inflation rose by 0.1% MoM in December, well below market expectations and our call (BBG: 0.3% MoM; Itaú: 0.4% MoM). The monthly increase in December was mainly driven by Transportation (+1.4% MoM), Restaurants and Hotels (0.2% MoM), and Recreation and Culture (0.48% MoM). On the other hand, Food and Non-Alcoholic Beverages fell by 0.3% MoM.
On an annual basis, inflation dropped by 28 bp to 1.97%, returning to the mid-point of the 2% (+/- 1%) target. Headline inflation has stood within the target range for nine consecutive months. Core inflation (ex-food & energy) rose at a swifter 0.4% in December, which led to an annual variation of 2.6%.
Out Take: We expect inflation to remain within the BCRP’s inflation target range through 2025, with activity around its potential level of 3%. In this context, and with fewer cuts by the Fed, we believe the BCRP is likely to eventually and cautiously resume policy rate cuts from the current 5% to 4.5% this year.
