Fynsa
After a couple of years in which it had once again become a priority issue, we assumed that 2024 would finally mark the return to our inflationary "normality". The contractionary monetary policy, lower external pressures, weak demand and the inflationary anchoring of expectations allowed us to project convergence to 3% without much difficulty.
However, something changed.
The announced increase in electricity tariffs, by a very significant percentage, set off alarm bells and raised doubts about the continuity of the inflationary normalization process expected for last year. A shock The announced increase in electricity tariffs, by a very significant percentage, set off alarm bells and raised doubts about the continuity of the inflation normalization process expected for the past year.
However, although 2024 closed with higher inflation than projected at the beginning of the year, the potential risks from the tariff hike have not materialized. In particular, the December CPI decreased by 0.2% compared to the previous month, a drop somewhat higher than what we and the market expected (0.1%). Thus, inflation was 4.5% during 2024, slightly lower than our projection, although somewhat lower than the Central Bank's recent IPoM update of 4.8%.
Analyzing the underlying indicators, we note that the non-volatile CPI showed zero variation, closing 2024 at 4.3%. While this is below the rise in the headline index, the difference is not as significant as we might have previously predicted, considering that the aggregate CPI includes the increase in electricity tariffs, but the core does not. In any case, other indicators of inflationary pressures do not yet show evidence of inflationary pressures, such as, for example, the diffusion index, which reached 40%, very slightly above the 38% of 2023, but well below the average of the Decembers (45%) and becoming the second lowest of the year.
The fact that the risks have not materialized does not mean that they may not do so, but at a later date. The additional depreciation of the peso and the rise in labor costs, recently pointed out by the Central Bank in the last IPoM, add more components to the potential pressures that could emanate in 2025, which tilt the balance only one way. Anyway, let's see if all of them can overcome the weakness in demand and what that implies for prices. Thus, we maintain our inflation estimate for 2025 at 3.6%.
