National inflation decelerated in October, but from a high reading in September.
National inflation decelerated in October, but from a high reading in September. Consumer prices gained 1.5% from September to October, in line with market expectations (Bloomberg survey: 1.5%). The reading decelerated from the previous month (1.9% MoM), but remained above the 20% YoY levels. The last-three-month cumulative inflation fell to an annualized 21.2%, from 21.9% in September. Prices have increased by 19.4% year to date, surpassing the upper band of the 12%-17% central bank target range for 2017.
Core inflation resumed the disinflation trend. The core reading increased by 1.3% MoM in October, after posting a 1.6% average over the last three months. The reading was one of the lowest since the beginning of the year; there was another 1.3% MoM in June. This led to a three-month annualized cumulative inflation of 18.6%, from 21% in September and 19.7% in August. Core inflation has averaged 1.6% MoM since the beginning of the year (1.7% in 1H17 and 1.5% from July to October).
The central bank expected a deceleration in core inflation. However, the monetary authority stated that the current pace of inflation remains above the level sought. The central bank raised the monetary policy rate by 100 bps last week, to 28.75%, following a 150-bp hike in October.
Despite some relief in the core reading, the 2018 target is still distant (10%+-2%). We expect no changes in the monetary policy rate for the rest of the year. However, until inflation resumes a convincing downtrend, the risks are tilted toward rate hikes in the short term.
We recently adjusted our headline inflation forecast for 2017 and 2018 to 23% and 18%, respectively, from 22% and 16% in our previous scenario.
Juan Carlos Barboza