Fynsa
The inflationary problem is far from over, but I have the feeling that we may be at the beginning of the end of this negative imbalance for everyone. Although there is still a long way to go to draw more definitive conclusions, the data published by INE regarding April's CPI provides some auspicious clues.
First, we were informed that the CPI for the fourth month of the year increased 0.3% over March, which was slightly above what we expected (albeit due to a methodological discrepancy), but in line with the market. Thus, the year-on-year change fell from 11.1% to 9.9%, returning to single digits after thirteen months. Although this reduction is something we have seen in previous records, since this data should intensify at a faster rate.
Second, the underlying breakdown also showed good news. The main explanation for the reduction in inflation in recent months has been the moderation of the volatile component, driven by falls in food and fuel prices, while the non-volatile component remained almost unchanged since August last year.The main explanation for the reduction in inflation in recent months has been the moderation of the volatile component, due to falls in food and fuel prices, while the non-volatile component has remained almost unchanged since August of last year. This was aggravated when looking at the services sub-index, which had not only remained unchanged, but even increased. Therefore, the decline in all underlying indicators is a fact that cannot go unnoticed. Moreover, in our analysis, it is the most important result delivered by this CPI.
Another interesting measure in this context has been to look at the diffusion index, measured as the percentage of goods increasing in price. This came in at 51% during April, which was below that observed in April 2022 but, more surprisingly, below the average "April" since 2009. A similar result has not been replicated since 2021. Therefore, while there are still products that will continue to increase due to their indexed determinants, there will be fewer and fewer of them, causing the feedback to also slow down.
The most pleased with this data must be the Central Bank. Having such a contractionary monetary policy and not seeing results in inflation must have been very disappointing. Starting to see results not only restores credibility, but also gives us more degrees of freedom for possible cuts in the TPM in the coming months. However, we still think not before September.
In the short term, the good news should continue. For May, we expect the CPI to increase 0.2% with respect to April, which would bring the year-over-year change to 8.8%. Finally, we maintain our year-end projection at 5.0%.
