Fynsa
Little by little, the economy is “returning to normal.” After the party came the bill, and it wasn’t cheap. However, the latest figures show that we are gradually returning to less exceptional conditions. This is reflected in the recent inflation data. The National Institute of Statistics (INE) reported that the CPI rose 0.1% month-over-month in May, which was below our forecast (0.2% month-over-month) and the market’s forecast (0.3% month-over-month). Consequently, the year-over-year rate reached 8.7%, with a year-to-date increase of 2.3%. As we have mentioned previously, year-over-year inflation is expected to decline by about 1 percentage point per month due to high comparison bases, a trend that is expected to continue consistently through September.
This time, the sectors with the largest positive contributions were Restaurants and Hotels (+3.7% m/m, contribution 0.055 pp) and Household Maintenance (+0.7% m/m, contribution 0.043 pp), which were partially offset by Transportation (-1.0% m/m, contribution -0.140 pp). Within the latter category, the sharp drop in intercity transportation prices stood out (-12.6%, impact -0.063 pp), which, although seen on other occasions, clearly falls outside the normal seasonal range. The same is true for airfare, although for this product the surprise was not in the magnitude but in the direction of the change, as airfare does not typically fall during the month.
On a core basis, the CPI excluding volatile items (IPCSV) rose 0.5% m/m, which partly indicates that, although easing, certain inflationary pressures remain. In any case, its year-over-year rate fell to 9.9%, dropping below double digits after 10 months. Breaking it down, the CPI-V for goods rose 0.6% m/m (10.6% y/y, down from 11.4% y/y in April), while that for services increased 0.4% m/m (9.3% y/y, down from 9.5% y/y in April). Meanwhile, the diffusion index—measured as the percentage of goods whose prices increased—reached 53%, which is slightly above the average for May since 2009 (49%).
As we saw in the second paragraph, while inflation continues to decline, the impact of the drop in the basket’s most volatile components on this trend is significantly greater than that of the core components. According to our calculations, the Central Bank should not face any significant surprises regarding prices relative to the macroeconomic framework presented in March, and, with the June IPoM release just around the corner, its stance on monetary policy should not be affected either. With this in mind, we maintain our expectation that any changes to the TPM will likely have to wait until September, even though part of the market is eager for the opposite to happen.
