Fynsa
The April CPI surprised by coming in below expectations, reinforcing the trend of inflation moderation. Convergence towards the target seems to be progressing, with no significant pressures on the near horizon.
The October CPI does not set alarm bells ringing, nor does it change the downward trajectory that inflation has been on for some time now. It is true that the significant increase in electricity tariffs has delayed this process, but we are opposed to thinking that it has diverted it completely.
We continue to see that, excluding the impact that electricity tariffs could have, inflationary pressures in the economy are low and continue to reflect stagnant activity.
From a monetary policy standpoint, we see that with the recent data, not only on inflation but also on activity, the Central Bank has room to continue lowering the rate.
In our opinion, the latest INE sectoral figures give us a picture closer to stagnation than to buoyant growth.
January's inflation came in higher than expected, but we must remember that a new basket of goods was introduced to measure inflation, along with a new base year of 2023 = 100, which also incorporated methodological changes and improvements.
The main question the market is asking after the January CPI is whether this surprise puts the decline in inflation at risk.
It is important to mention that we do not believe that inflation is over and that the risks of persistence and slower normalization are still present.
Although the "less bad" Imacec data would avoid technical recession, this does not mean that there is reason for optimism.
We must not lose sight of the structural impacts of the social explosion and the pandemic on the labor market.
