Fynsa
In general, when we talk about "surprise" in this space, it is to refer to results that are different from what we expected and that make us reevaluate our expectations going forward. However, experience has experience has shown us that, before talking about a complete surprise, it is necessary to analyze what it was that surprised us.
The INE published the CPI for January 2023, which increased 0.8% m/m (0.798% m/m), which was above our expectations, those of the market and those implicit in financial assets, all by 0.5% m/m. With this, the year-on-year variation was reduced from 12.8% to 12.3%, a drop that, although expected, as described above, was lower than projected. However, we expect this trend to continue in the coming months.
Turning to the data in particular, I believe that the main question the market is asking is whether this surprise puts at risk the decline in inflation and, therefore, the eventual normalization of the this surprise puts at risk the decline in inflation and, therefore, the eventual normalization of the TPM. We believe that the usual analysis we do, separating by underlying measures, alternative baskets or diffusion index does not give us all the answers to that and it is necessary to dig a little deeper. Lest the "surprise" is not necessarily a surprise. That is why, looking at the main variations, we went to review at the product level and I think that allows us to draw somewhat different conclusions to those that the market might intuit at first glance.
Overall, the main surprises with respect to our estimate were found in the Apparel, Health and Household Equipment and Miscellaneous Goods and Services divisions. For the first, the variation surprised us in direction, going against seasonality. However, two clicks and we realize that there were two products that explained this situation: Clothing and school shoes. Both presented increases well above what they show in January, with 17% m/m and 24.6% m/m, respectively, versus 4.6% and 1.8% that average the last 5 years. The rest of the division did behave as seasonally expected, so we believe this is a one-time surprise.
On the Health side, there were significant increases in some specific medicines and an increase in hospital services, which could be related to the application of VAT to services that came into effect during the month. In miscellaneous services, we saw a significant increase (again) in insurance, while in Home Equipment we also saw increases in specific products that are not even grouped by class or group. Therefore, our assessment is that it would be more of a one-off and not necessarily enough to change the trend we expect for the coming months (excluding March, given the strong indexation of the month).
As we mentioned, market sentiment is likely to change because of this data, a situation that we believe would be exaggerated and not based on the evidence shown by this particular CPI. That could raise monthly inflationary expectations for the coming months, which we would not generally agree with. In fact, we preliminarily expect the February CPI to rise 0.1% m/m. For the TPM, correctly, albeit for the wrong reasons, the market is likely to continue to delay the month in which the Central would make the first (downward) move in the TPM. At press time, the debate was between April and May, although we have long been leaning towards June or July.
