Fynsa
After a major surprise in October, inflation expectations had fallen significantly. For the first time in a long while, prices weren’t rising as expected; some products were offering some relief, and—perhaps more out of hope than anything else—we could see a way out of this problem that we hadn’t seen in decades. While there was cause for optimism, our perspective and analysis urged us to remain cautious, not to forget the context in which this was happening, and, above all, not to overlook the persistence that price trends had been showing for months.
Thus, we learned the November CPI, which rose 1.0% month-over-month, exceeding market expectations (0.4% month-over-month) and our own forecast (0.6% month-over-month). As a result, the index posted a year-to-date increase of 12.5% and a 12-month change of 13.3%, rising after two consecutive declines.
To make a long story short, the data clearly showed us that inflation is far from ceasing to be a problem, as some market participants believed following last month’s downward surprise (a view we never shared), regardless of whether, on this occasion, the influence came mainly from non-volatile goods or the volatile component. We highlight the latter because, in the statement from the monetary policy meeting, the Central Bank noted that October’s downward surprise had been driven by a decline in core goods. While we had a more inflationary bias than the market, what really surprised us was the diffusion index, which reached 71%, marking a new all-time high. Unlike the previous record, this occurred in a month that typically sees low diffusion indices.
When we take a closer look at the categories, we remain concerned about what’s happening with food prices. Even taking into account significant monthly fluctuations, we’re falling short on meat, dairy, and fruit. Thus, this category continues to be, by far, the one that has the greatest impact on annual inflation. If we add in the price data we’ve been able to gather for December, the situation doesn’t look very encouraging, which increases the risk that unorthodox solutions will emerge to “combat” it.
That is why for December, we estimate a monthly price increase of 0.5%, higher than our previous projection—a projection for which we have even factored in an upward bias, given certain risks that could materialize as the month progresses, particularly those linked to the truckers’ strike, as well as certain assumptions we have made regarding fuel prices. Thus, inflation would close out 2022 at 12.9%. Looking ahead to 2023, we would see a decline in inflationary pressures, but with multiple risks associated with both the volatile component and price persistence and rate adjustments. We maintain our projection for the end of next year at 4.7% year-over-year.
