Headline inflation rose by 0.69% MoM in February (from 0.6% a year ago and a 5-year median figure of 0.9%). The print was below our forecast (1.1%) and market expectations according to the BCU’s survey (1.0%). The main monthly impacts came from housing, electricity, and water, which rose by 2.84% MoM (incidence of 0.36 p.p.), mainly explained by the end of the application of "UTE rewards” on electricity (electricity prices rose 8.6% MoM). On the other hand, food and non-alcoholic beverages increased by 0.26% mom (incidence 0.2 p.p.) driven by higher legumes but partially offset by lower meat prices. In addition, Education increased by 2.0% MoM, reflecting the annual adjustment of scholarships. Core inflation (excluding fruits & vegetables and fuel prices) increased by 0.72% MoM, from 0.61% MoM in February 2024. On an annual basis, headline inflation rose slightly to 5.10% in February (from 5.05% in January), while core inflation accelerated to 5.46% from 5.35% in the previous month. We note that both readings remain within the Central Bank's inflation target of 4.5% +/- 1.5%.
At the margin, both headline and core inflation slowed in February. Using our own seasonally adjusted figures, the three-month annualized headline inflation fell to 5.3% in February (from 6.3% in January), while core inflation was 7.3% (from 8.8% in the previous month).
Our CPI heatmap shows that 54% of selected items are below the center of the central bank’s target (4.5%), up from 38% in January.
Our take: We recently revised our YE25 CPI forecast down to 5.5% from 6.0% previously. Our baseline scenario considers two more rate hikes this year, given the deterioration in inflation expectations. However, we cannot rule out a pause at the next monetary policy meeting given the second consecutive downside CPI surprise and a stronger UYU. March CPI will see the light of day on April 3, while the next policy meeting (the first under the new board) will be held on April 8.