Fynsa
Throughout 2022, one thing remained constant: inflation showed no signs of letting up. Month after month, we saw how, time and again, the CPI change broke every record in recent history. What’s more, just as external conditions were beginning to ease, the indicator seemed to take on a life of its own, ignoring the slowdown we should have experienced. The beginning of 2023 showed tentative positive signs, but they were insufficient to signal the end of the inflationary cycle.
However, over the past few months, we have observed some signs that suggest the price adjustment process is taking hold. The most recent sign of this came late last week, when the INE reported that the CPI for June fell 0.2% m/m, which was below both our expectations and those of the market (0.1% m/m). Thus, inflation, which stood at 12.8% at the end of 2022, has now fallen to 7.6% and will likely continue to decline rapidly through September.
Furthermore, when analyzing the indicator that excludes the most volatile items from the basket, the news was even better: the core CPI remained unchanged after 23 months of consecutive monthly increases. As a result, it stood at 9.1% year-over-year, the lowest level in 13 months. This was mainly influenced by the decline in the goods component (-0.4% m/m), offset by the services component (+0.3% m/m).
Meanwhile, the diffusion index reached 42%, the lowest of the year and below the average from 2009 through 2022, mainly due to an 86% increase in products from the Restaurants and Hotels division and a 64% increase in health products. Interestingly, 45% of products saw price decreases, led by 79% in clothing and 69% in home furnishings.
We believe this result makes it much easier to communicate in light of an imminent cut in the TPM by the Central Bank, which is expected to occur in July. The size of this cut would be in the range of 50–75 basis points, with further cuts expected at the remaining three meetings in 2023 (September, October, and December).
