Nader Nazmi - Market Economics
Latam Macro Snapshot | 08 Mar 2013 13:37 |
Consumer prices rose only 0.1% m/m in February, less than the consensus 0.3% m/m call and our own 0.2% m/m projection. Annual inflation dropped to 1.3% y/y, sinking further below the 2% floor of BCCh's target band (Chart 1).
Prices increased in six of the CPI's 12 categories (Table 1). These price increases were moderate except for clothing (+0.7% m/m) and transportation (+1.2% m/m). Given that transportation prices account for 19.3% of the CPI basket, they added 0.24pp to headline inflation. Ex-transportation, consumer prices declined 0.1% in the month.
Core CPI inflation (IPCX, excluding fruits and vegetables) rose 0.1% m/m in February. The year-on-year measure of core inflation was only 1.0% y/y in February, down from 1.4% y/y in January. The BCCh's preferred measure of core (IPCX1, which also excludes regulated prices) increased 0.2% m/m in February.
Gasoline prices increased 3.4% m/m in February, making the largest single-item contribution by adding 0.15pp to headline inflation. This was offset by food price deflation. Food prices declined 0.7% m/m in the month, reducing headline inflation by 0.15pp. Annual food price inflation declined from 5.3% y/y in January to 3.7% y/y in February.
Education prices were flat in the month, but we expect a large jump in these prices in March due to seasonal factors.
February CPI data show that inflation remains subdued despite rapid growth in activity and buoyant domestic demand. Much of increased domestic demand is being absorbed by imports. As a consequence, while the current account deficit continues to rise, inflation remains in check. Under such conditions, inflation may be a poor barometer for overheating.
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