Inflation fell by 0.1% MoM in January, well below market expectations and our call (BBG: 0.04% MoM; Itaú: 0.03% MoM). The monthly print in January was mainly driven by Transportation (-1% MoM; -12 bp contribution), due to a normalization of seasonal travel demand after the holidays. Food and Non-alcoholic beverages fell 0.3% (- 8 bp contribution). Otherwise, Restaurants and Hotels and Housing, water, & domestic energy tariffs rose in January (0.4% MoM and 0.2% MoM respectively)
On an annual basis, inflation dropped by 12 bp to 1.85%, below the mid-point of the 2% (+/- 1%) target. Headline inflation has stood within the target range for ten consecutive months. Core inflation (ex-food & energy) fell 0.15% in January, which led to 2.4% YoY, its lowest level over the past three years.
We expect inflation to remain within the BCRP’s inflation target range through 2025, with activity around its potential level of 3%. Still, the 10% minimum wage hike poses an upside risk to inflation. In this context, the BCRP is likely to eventually and cautiously to deliver a final rate cut from the current 4.75% to 4.5% later this year.
