Fynsa
The inflation problem is far from over, but I have a feeling that we may be at the beginning of the end of this imbalance, which is so detrimental to everyone. While it’s still too early to draw more definitive conclusions, the data released by the INE regarding April’s CPI offer some encouraging signs.
First, we were informed that the CPI for the fourth month of the year rose 0.3% compared to March, which was slightly higher than we had expected (albeit due to a methodological discrepancy), but in line with market expectations. As a result, thethe year-over-year rate fell from 11.1% to 9.9%, returning to single digits after thirteen months. While this decline is something we have seen in previous reports, based on this data, the pace of the decline should accelerate.
Second, the underlying breakdown also showed positive signs. The main reason for the decline in inflation over the past few months has been the moderation of the volatile component, driven by declines in food and fuel prices, while the non-volatile component remained virtually unchanged since August of last year. This was compounded by the services subindex, which had not only remained stable but had actually increased. Therefore, the decline in all underlying indicators is a fact that cannot go unnoticed. Moreover, in our analysis, this is the most significant finding revealed by this CPI.
Another interesting metric in this context has been to examine the diffusion index, measured as the percentage of goods whose prices are rising. This reached 51% in April, which was lower than the figure observed in April 2022 but, more surprisingly, below the average for “Aprils” since 2009. A similar result had not been seen since 2021. Therefore, while there are still products that will continue to rise in price due to their indexed determinants, their number will gradually decrease, causing the feedback loop to weaken as well.
The Central Bank must be the happiest about this data. Having such a tight monetary policy and seeing no impact on inflation must have been very disappointing. Starting to see results not only restores credibility but also provides more flexibility for potential cuts to the policy rate in the coming months. That said, we still believe this won’t happen before September.
In the short term, the good news should continue. For May, we expect the CPI to rise 0.2% from April, which would bring the year-over-year change to 8.8%. Finally, we maintain our year-end forecast at 5.0%.
