Peru - Economic Briefing November 2002

Peru Fastest Growing Economy in Latin America (continued)

Consumer prices spike sharply in October, raising headline inflation to the highest level in more than a year
In October, the consumer price index for Metropolitan Lima registered an increase of 0.72%. Consumer prices were pushed upwards by strong increases in the category “food and beverages” as well as “housing rents, fuels and electricity”, which rose in the wake of higher oil prices. The other six categories surveyed by the INEI did not register significant price movements. The October price spike exceeded expectations of 0.41% considerably and was also above the 0.47% increase registered in September. As a result of the October pick up in consumer prices, annual headline inflation doubled from 0.7% in September to 1.4% in October. This represents a strong upward swing from the first half of the year, when Peru was constantly hovering around the brink of deflation. As recently as July, the annual inflation rate was negative. If consumer prices increase only 0.3% in the remaining two months of 2002, headline inflation will reach 2.6% by the end of the year. As a consequence, inflation would even narrowly exceed the 2.5% central inflation target (with a one percentage point margin on either side of the target) set by the Peruvian Central Bank in January. Panellists so far remain sceptical about a notable year-end acceleration in headline inflation but have nevertheless raised their forecast for 2002 a notch.
 

Central Bank announces that 2003 inflation target may come under pressure from the El Niño effect
For 2003, the Consensus sees inflation easing to a more moderate 2.0%. This is below the central target the Central Bank announced in its recent inflation report. Monetary officials aim to achieve a 2.5% central target with a margin of one percentage point to either side of the centre. However, the Central Bank sees a number of risks in achieving this objective, most notably the potential impact of the El Niño weather phenomenon. In the current year, favourable climatic conditions have played a significant role on keeping prices contained. This effect could be reversed if El Niño negatively impacts agricultural production. However, the most recent projections point towards a weaker intensity of El Niño, which severely affected the country 1997/1998.
 

Trade balance continues improving trend in August, Peru likely to incur first trade surplus since 1990
In August, the trade balance incurred a surplus of US$ 96.7 million. This was the fourth consecutive month with a trade surplus. As a result, the annual surplus rose from US$ 135 million to US$ 204 million. If this trend continues this year Peru would obtain the first trade balance surplus since 1990. Panellists are increasingly optimistic about the trade balance and have hiked their forecast for a surplus yet again since last month to US$ 231 million. The improvement in the trade balance is attributable to both, higher exports (trailing 12-month sum +2.1% over same period last year) and lower imports (-3.4% over the same period). Exports are benefiting from rising volumes (+2.3% in the first eight months compared to the same period last year) as well as improving prices (+1.9% over the same period), whereas imports have recorded slightly lower volumes (-0.3%) and prices (-1.3%). In addition, exports are profiting from rising shipments of traditional products, most prominently mining, as the output from the Antamina mining project adds to the existing goods.

 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Peru.  For more details please click here.

For five-year forecasts, please click here.