Peru’s Inflation Tops Forecasts as Food, Transport Prices Climb

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(Bloomberg) — Inflation in Peru’s capital accelerated faster than expected in July as food and transport prices climbed, staying above the target range for a fifth straight month.  

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Consumer prices in Lima rose 4.07% from the same month a year earlier, compared with the 3.92% median estimate of economists surveyed by Bloomberg. Leading the annual jump, transport saw by far the biggest change with a 14.30% rise, followed by restaurants and hotels at 4.18% and food and non-alcoholic drinks at 3.46%, according to data released Saturday by the INEI national statistics agency.

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Prices in the capital, which have long been used as a proxy for Peru’s inflation rate, accelerated 0.29% from June. That reading also topped the 0.25% median estimate. 

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The result comes as a challenge for Peru’s central bank, which maintains a target band for annual inflation of between 1% and 3%. Policymakers have said inflation would slow to its target range early next year, while acknowledging inflation risks are tilted to the upside as the El Niño weather phenomenon is likely to renew pressure on food prices later this year. 

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The central bank will next review its benchmark interest rate on Aug. 13. The policy rate has been left unchanged at 4.25% for 10 consecutive months. 

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Peru has had one of the lowest inflation rates among emerging-market economies in recent years, but prices have remained above the upper end of the target range since March as rising food costs have added to the global energy shock.

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Despite the El Niño threat, the Peruvian economy is expected to grow more than 3% this year, driven by high metal prices and strong private spending. Investor confidence is poised to improve under the new administration of conservative President Keiko Fujimori, who picked consultant and former central bank director Elmer Cuba to lead her economic agenda and nominated Julio Velarde to stay for another term at the helm of the central bank. 

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During her first address to the nation this week, Fujimori pledged to ensure fiscal sustainability, cut regulatory burdens to boost investment and support small businesses to enhance formalization. Her administration plans to ask Congress for temporary powers to govern by decree on key security and economic policies.

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—With assistance from Rafael Gayol.

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