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Consumer
prices remain unchanged in October for fourth consecutive month but
inflation remains well above target rate
In October, consumer prices remained virtually unchanged. The
reading was in line with last month’s Consensus Forecast figure, which
saw prices dropping by 0.01% versus the actual 0.02% decline.
October represented the third consecutive month of price stability.
As in the previous months, higher prices for housing, fuels and
electricity as well as transport/communications and health-related goods
and services were offset by lower prices for food and beverages. As
a result of the moderate price development in October, annual headline
inflation remained unchanged at 4.0%. The stabilisation of the
annual headline inflation rate is putting an end to the rapid rise
registered since April, when inflation shot up by 1.8 percentage points to
4.6% in a period of only four months. Nevertheless, inflation
remains well above the Central Bank’s 1% tolerance margin around the
2.5% central target. Core inflation, which excludes the
erratic effects of volatile categories such as fresh fruits and vegetables
as well as fuels, is developing more favourably. In October, the
core inflation index increased 0.17% and annual core inflation remained at
2.8%.
Central
Bank expects inflation to drop by end of the year
The Central Bank projects that inflation will drop in the coming months to
finish the year close to 3.5%. In 2005, monetary authorities hope to
return to the centre of the target range. Moreover, officials expect
core inflation to be slightly above the mid-point of the range in both
years. Given the recent moderation in inflation, Consensus Forecast
participants have lowered their year-end 2004 inflation forecast a notch
over last month to 3.1%, well above the Central Bank’s target but just
slightly above the border of the tolerance margin. Next year,
inflation will drop to 2.6%, according to this month’s Consensus.
Tax
revenue increases in October
Peru's October tax revenues rose to 1.93 billion soles (US$ 581 million).
The October tax take represented a 7.3% increase in real terms over the
same month last year but remained below the 2.05 billion soles in revenues
generated in September. A 5.4% rise in sales tax collection and a
15.4% jump in income tax revenues were key to the boost in the tax
collection observed in October. Furthermore, customs tariff income
rose 10.1% in October, compared with the year-earlier period and a levy on
banking transactions that came into effect this year brought in 62 million
soles (US$ 18.7 million) in October. On the downside, consumer tax
collection dropped 15.3% in October, in the wake of a cut in fuel levies
designed to offset the effects of higher oil prices. The steady
increase in tax revenues observed over the past two years -- Peru's tax
revenue rose 11.6% to 21.38 billion soles (US$ 6.4 billion) in 2003 --
have helped the government of President Alejandro Toledo to improve
government accounts notably. Following the success of last year, the
government expects to meet its fiscal deficit target of 1.4% of gross
domestic product (GDP) in 2004. For this year, the state tax agency
SUNAT forecasts the tax take to increase further to 26.9 billion soles
(US$ 8.1 billion) amid strong economic growth, additional revenues from
the bank transactions tax and a crackdown on tax evasion. Consensus
Forecast panellists have maintained their fiscal deficit outlook at 1.5%
of GDP for this year and at 1.4% of GDP for 2005.
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