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Trade
surplus narrows amid investment-led import growth
Rising
domestic demand is beginning to drive up imports, which increased 92.3% in
December 2003 over the same month in the prior year. Rising capital
goods imports were the key force behind the robust December expansion,
tripling over December 2002. Consumer goods imports followed capital
goods imports, increasing 127.0%, whereas intermediate goods imports
experienced more moderate growth of 52.4%. Export growth also
continued along a robust but much more moderate growth trajectory with a
21.6% expansion over December 2002. The December figure was up from
the 12.0% expansion in November and confirmed an acceleration trend
observed in the final quarter of the year. As a result, of the
December trade flows, the annual trade surplus narrowed moderately from
US$ 15.7 billion in November to US$ 15.4 billion at the end of the year.
Participants expect imports to grow at a quicker pace than exports this
year. As a result, the trade surplus will narrow slightly to US$
15.3 billion by the end of this year.
Consumer
price trend unchanged despite rising economic activity
In
January, consumer prices rose 0.43%, which represented an acceleration
compared to the 0.21% increase observed in December but remained well
below expectations. As a result, the annual inflation rate dropped
from 3.7% in December to 2.7% in January. Wholesale prices continued
their decline experiencing a 0.41% drop in January, contrasting a strong
1.8% monthly increase the prior month. As a result, the annual
variation in wholesale prices declined from 2.0% in December to 1.2% in
January. Despite the current pick up in economic activity, inflation
remains subdued, as the government continues to postpone an increase in
public utility tariffs, which have remained frozen since the devaluation
in 2002. Furthermore, the strengthening in the exchange rate last
year has added an additional dampening factor to a more pronounced
increase in consumer prices. The current subdued inflation
environment may encourage officials to adopt the long anticipated hike in
public utility tariffs. The estimated 15% to 20% increase in tariffs,
when combined with accelerated economic activity and currency depreciation,
is seen to exert substantial upward pressure on consumer prices this year.
As a result, Central Bank officials announced an inflation target range
between 7.0% and 11.0% by the end of this year. The Consensus this
month is at the lower end of the official target range with participants
expecting inflation to reach 7.5%, down 0.3 percentage points from last
month’s Consensus Forecast. The moderation in domestic demand
growth next year should reduce inflation, which is seen to drop to 6.2% by
the end of 2005.
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