Replying to a question by the Perfil newspaper on the consequences of the inflation starting the year on two percent, Central Bank chief Federico Sturzenegger replied this month that the government wasn’t even considering that scenario. But private consultancy firms believe Sturzenegger must be the verge of having to consider such a scenario.
Private inflation forecasts for this year were raised two percentage points to 19.4 percent from the 17.4 percent they estimated in January last week, when the Survey on Market Expectations was published.
It’s far from a minor headache for Sturzenegger’s antiinflationary strategy. It’s the second time that the analysts who represent the market’s perception have increased their projections since the government decided on December 28 to raise the inflation target for this year from 10 to 15 percent, leading a drop on the rates and an increase on the exchange rate.
The first time the government increased their inflation target it raised expectations from 16.6 to 17.4 percent. But now officials also forecast higher core inflation, which doesn’t measure prices with seasonality and prices regulated by the Central Bank. The previous forecast for core inflation rose two percentage points to 16.9 percent.
The combination of lower rates, as pursued by the Central Bank, and the impact of the higher prices on public utilities and fuel – which kicked in over the last week – has prompted experts to revise expectations, predicting that February’s inflation rate would be at 2.1 percent, while in March and July they expect it to be between 1.3 and 1.8 percent.
“In relation with December’s survey, the projection of the monthly inflation rate was increased for all the relevant periods, focusing on February (0.5 percentage points) and April (0.4 percentage points). A drop on the inflation rate in July is expected, reaching 1.3 percent,” the document reads.
It’s the ninth time the forecast raised the estimates for inflation.
ACCELERATION
“The increase in the inflation target, the drop in rates, the increase on the exchange rate and the uncertainties over the credibility of the Central Bank in managing the nominal anchor, based on the 15-percent, has goal led to the inflation expectations to be changed,” Federico Furiase, an economist at the EcoGo consultancy, former Estudio Bein, posted on Twitter.
“With such acceleration of the inflation expectations for 2018 and the increase in prices of food, the Central Bank can’t lower rates if it wants to maintain the credibility of the 15-percent goal used as a reference framework to negotiate the wage increases without a trigger clause,” he added.
At the Central Bank they consider private consultancy firms to be partly mistaken in how they see the impact the increase on public transport tariffs in February’s inflation rate. Because of that, they included a section on their last monetary policy report to explain that the multi-modal ticket being introduced, Sube RED, could have a minor impact.
The report also argues that better figures will be seen from June when the tariff increases will have already happened. The report this time around also included figures on changes regarding the exchange rate. From forecasting an 18-peso exchange rate to the dollar previously, experts are now expecting to see a peso trading at between 19.7 and 20.6 to the dollar. In that context, they also lowered their projection of economic growth to three percent, 0.2 percentage points lower than before.
Yesterday, the peso reached a new high against the dollar: 20.35.
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