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Consumer prices drop in April
bring rising inflationary trend to a halt
In April, consumer prices dropped 0.05%. The drop was unexpected as
markets had anticipated consumer prices to increase by 0.18% in April,
according to last month’s Consensus. Declining prices for food and
beverages were the main drivers behind April’s price drop, contrasted by
sharp price increases in transport and communications, as well as higher
prices in health services. The April price decline brings an end to a
series of three consecutive monthly price hikes, which had rapidly raised
the annual headline inflation to 3.4% in March, more than twice the rate
registered at the end of 2002. In April, annual headline inflation dropped
to 2.6%, almost in line with the Central Bank’s year-end target of 2.5%
with 1% margin to either side of the mark. The Consensus is optimistic
that monetary authorities will achieve their target.
Fiscal deficit shrinks in first quarter amid strong rise in revenues
In the first quarter, the central government primary balance recorded a
surplus of 665 million soles (US$ 191 million), more than ten times the 59
million soles (US$ 17 million) surplus reached in the same period last
year. Current revenue amounted to 7,323 million soles (US$ 2.1 billion),
up 18.3% from the first quarter 2002, whereas non-financial expenditure
increased only 8.4% over the same period. Revenues were in part inflated
by an accounting change at state-owned Banco de la Nación and a low
comparison base for the same period last year. Nevertheless, the Toledo
administration plans to increase tax revenues. According to a government
letter sent to the IMF in mid-March, fiscal authorities plan to raise
revenues by 0.5 percentage points of GDP over last year to 12.7% of GDP
this year. Expenditures, on the other hand, also increased at a far faster
clip than the 2.0% real term growth limit set by the government. In
nominal terms, non-financial expenditure added 8.4% over the first quarter
2002. With interest payments amounting 996 million soles (US$ 286 million)
in the first quarter 2003, the overall balance recorded a 331 million
soles (US$ 95 million) deficit in the first quarter, equivalent to 0.7% of
GDP, according to a preliminary estimate. The deficit was less than half
the 829 million soles (US$ 239 million) deficit registered in the first
quarter 2002 and fuels hopes that the government will keep its pledge to
limit the fiscal deficit at 1.9% of GDP this year. Nevertheless, Consensus
Forecast panellists have maintained their forecast unchanged since last
month.
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