Inflation decelerated in May by more than expected.

According to INDEC (official statistical agency), consumer prices increased 1.3% between April and May, down from a 2.5% average in February-April.The central bank had already anticipated that the disinflation process resumed in May according to high-frequency indicators tracked by the monetary authority, but the CPI for the month was more benign than market participants were expecting (according to the central bank survey, analysts expected 1.6% month-over-month in May). The latest survey showed that market participants expect consumer inflation to fall a bit further, to 1.5% between May and June. Core inflation also slowed, reaching 1.6% (from an average of 2.0% in the previous three months).

Disinflation was broad based. Out of the 34 categories of the CPI basked, 68% posted lower month-over-month price increases relative to the previous month.

As a result, annual inflation fell to 24.0% from 27.5% in April. Core inflation also fell, to 24.6% from 25.9% in April while regulated prices decelerated to 26.1% from 32.2% previously. Despite the positive news in May, to meet the inflation target for this year (a range between 12%-17%) remains challenging, as it would be necessary to reduce the monthly inflation to an average of 0.82% month-over-month during the rest of the year to hit the upper band.