Fynsa
It had not been the most positive start of the year for prices, with CPIs varying 0.7% and 0.6% m/m in January and February, respectively. March appeared on the horizon, with the knowledge that the seasonality of the period made it difficult to expect a moderation with respect to the data already known. While we expected 0.6%, the market was projecting 0.5%, in a month always strongly influenced by the education division. Therefore, it was an interesting surprise it was therefore an interesting surprise that prices "only" increased 0.4% over the previous period, moderating fears of a resurgence of inflationary pressures.
However, we believe that there is much more to investigate here. The first thing is that, contrary to what we expected (taking prices from ODEPA), food showed a fall of 0.9% m/m, which had a negative impact on the aggregate index of 0.2 pp. In simple terms, without this fall, the CPI variation would have been 0.6%. In part, that would have explained that the CPI without volatiles increased just 0.6%, which is in addition to the 0.7% and 0.6% of the previous months. Without more information than this, perhaps we would fear a resurgence of pressures.
Second, however, these price variations are very different from those observed in recent inflationary cycles, not only because of what the decomposition of the basket suggests, but also because of the current macroeconomic context. Thus, while these increases have not been explained by cross-cutting increases within the basket (but rather by a handful of specific products), current demand and liquidity have not been able to explain these increases, current demand and liquidity would not argue for overheating, as it did in 2022.
When we monitor the diffusion index, March's 51.2% is not only the lowest of the year, but also lower than the average for March (since 2009). With upside surprise and all, this also occurred in February, which called for an even more disaggregated analysis. In this context, the leasing product once again appears as one of the most incident, with a dynamic that is difficult to explain and which will require more data before a conclusion can be drawn. To be fair, the Central Bank itself highlighted this aspect in the IPoM, leaving us with doubts similar to those we have, which hopefully can be addressed by the INE in the near future.
Thus, with a year-on-year variation of 3.2%, the benchmark series was one step away from the target. Moreover, should we see a variation of 0.1% in April (not our projection in any case), the target would be achieved. Yes, we know that this is not exactly the target, since it is measured over two years, but in communication terms it would be tremendously valuable. Regardless of the above, and reaffirming that it is a continuous work, one could hardly argue that there is still a long way to go to return to normal inflation, as is happening in other economies. Thus, as cautious as one may be, we do not see a different destiny for the TPM than continuing to fall. More aggressive or less aggressive, it should reach 4.0% within this year.
