Fynsa
Everyone expected a drop, there was consensus that the cyber day would have had an important impact on prices for the month, food showed a drop... But no one expected the impact to be so significant. Thus, the June CPI showed a monthly drop of 0.4%, well below our and the market's estimates. Thus, prices accumulated 1.9% during the first half of the year, while the year-on-year variation dropped from 4.5% to 4.1%.
Indeed, as we budgeted, the main explanation for the month's results was the cyber day that took place at the beginning of the month. Thus, although Food led the negative incidences (given its significant relative weight), with a fall of 0.9% with respect to the previous month, it was followed by Clothing and footwear with a decrease of 6.4% and Household equipment and maintenance, with a decrease of 2.0%.
However, although the aggregate result seems significant, the underlying indicators soften the analysis somewhat. The CPI without volatiles had a null variation, which caused it to go from 3.6% to 3.8% year-on-year. This was caused by a monthly increase of 0.4% in the Services component, while the Goods component fell 0.6%. In any case, both increased in the variation versus the same month of last year, to 4.4% and 2.9%, respectively. On the other hand, the diffusion index reached only 32%, becoming not only the lowest of the year and the lowest for any other June, but also the lowest recorded for any month in the sample since 2013 onwards.
All in all, it is valid to ask whether this makes a cut in the TPM imminent. While we believe that this increases the probability of a cut at the July 29th meeting, it would not make it imminent. It is important to consider that many of the prices that fell the most during June will "normalize" in July, which would contribute to inflation for the current month being around 0.7%. Moreover, let us not forget that the Council's main concerns were not in the dynamics of local activity or prices, but rather in the risks and, above all, uncertainty of the external scenario, with policies and decisions that may have unclear implications for key variables. In any case, the continued path to inflationary convergence reaffirms our scenario of 3 TPM cuts before the end of the year.
