Fynsa
During 2022 there was a constant situation: inflation was relentless. Month after month we saw how systematically the variation of the CPI broke all records in recent history. Moreover, when more benign external conditions began to emerge, the indicator seemed to take on a life of its own, ignoring the slowdown we should have experienced. The beginning of 2023 showed timidly positive signs, but insufficient to speak of the end of the inflationary cycle.
However, during the last few months we have observed some elements that would account for a consolidation of the price adjustment process. The most recent was at the end of last week, when INE reported that the June CPI fell 0.2% m/m, which was below our and the market's expectations (0.1% m/m). Thus, from 12.8% where inflation ended in 2022, today it has dropped to 7.6% and will probably continue to adjust rapidly until September.
In addition, when analyzing the indicator that excludes the most volatile items in the basket, the news became even better: the CPI without volatiles had no variation, after 23 months of consecutive monthly increases. Thus, it reached 9.1% year-on-year, the lowest in 13 months. This was mainly influenced by the drop 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 lower than the average since 2009 ex 2022, mainly due to the 86% increase in the Restaurants and Hotels division's products and 64% in Health. Interestingly, 45% of products decreased in price, led by 79% for Apparel and 69% for Home Furnishings.
We believe that this result makes it much easier to communicate in view of an imminent an imminent cut in the TPM by the Central Bank, which would occur in July. The magnitude of this would be in the range of 50-75 bp, which would continue in the next 3 meetings remaining in 2023 (September, October and December).
