Fynsa
In general, when we talk about “surprise” in this context, we’re referring to results that differ from what we expected and that cause us to reevaluate our expectations moving forward. However, experience has shown us that, before we can speak of a complete surprise, we need to analyze what it was that surprised us.
The INE published the CPI for January 2023, which rose 0.8% m/m (0.798% m/m), exceeding our expectations, those of the market, and those implied by financial assets—all of which were at 0.5% m/m. As a result, the year-over-year rate fell from 12.8% to 12.3%, a decline that—although expected given the factors described above—was smaller than projected. In any case, we expect this trend to continue over the coming months.
Turning to this specific data point, I believe the main question the market is asking is whether this surprise jeopardizes the decline in inflation and, consequently, the eventual normalization of the MPR. We believe that our usual analysis—which breaks down the data by core measures, alternative baskets, or the diffusion index—does not provide all the answers to this question, and it is necessary to dig a little deeper. It may be that the “surprise” isn’t necessarily one at all. That’s why, looking at the main changes, we examined the data at the product level, and I believe this allows us to draw conclusions that are somewhat different from what the market might intuit at first glance.
Overall, the main surprises compared to our estimate were found in the Clothing, Health, and Household Goods and Equipment division and the Miscellaneous Goods and Services division. For the former, the direction of the change surprised us, going against seasonal trends. However, a quick look reveals that two products accounted for this situation: school clothing and footwear. Both posted increases well above their January levels—17% m/m and 24.6% m/m, respectively—versus the 4.6% and 1.8% average over the past five years. The rest of the division did behave as we expected seasonally, so we believe this surprise is a one-time occurrence.
On the healthcare front, there were significant price increases for certain specific medications and higher hospital service costs, which are likely related to the application of VAT to services that took effect this month. In miscellaneous services, we saw a significant increase (once again) in insurance premiums, while in household goods, there were also price hikes for specific products that cannot even be grouped by category or class. Therefore, our assessment is that these increases are more isolated in nature and not necessarily sufficient to alter the trend we expect for the coming months (excluding March, given that month’s strong indexation).
As we mentioned, market sentiment is likely to shift in response to this data, a reaction we believe would be exaggerated and not based on the evidence provided by this particular CPI. This could raise monthly inflation expectations for the coming months, a view we generally do not share. In fact, our preliminary forecast is for the February CPI to rise 0.1% m/m. As for the TPM, the market will likely continue to push back the month in which the Central Bank will make its first (downward) adjustment to the TPM—correctly, though for the wrong reasons. As of this writing, the debate was between April and May, although we have long leaned toward June or July.
