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Peru Consumer Prices Rise on Surging Domestic Demand

Peru’s consumer prices rose in July at the fastest pace in almost a year as a recovery in domestic demand gathers pace.

Annual inflation quickened to 1.82 percent last month, the fastest since August 2009, National Statistics Institute director Renan Quispe said in Lima today. The increase was in line with economists’ estimates for a 1.81 percent increase, the median forecast of eight analysts surveyed by Bloomberg.

Rebounding internal demand could push the annual inflation rate beyond 2 percent in the second half of this year, said Alejandro Cuadrado, a Latin America economist at Societe Generale SA in New York. Central bank policy makers are likely to raise the reference rate by a quarter-point for a fourth month on Aug. 5 as prices rise, he said. Peru targets an annual inflation rate of 1 percent to 3 percent.

“Inflation is getting stronger, but it’s still not a concern at this stage,” Cuadrado said in a phone interview from New York. “The bank can raise rates at a steady pace, unless it starts to receive stronger inflation readings toward the end of the year.”

Consumer prices rose 0.36 percent in July from June, led by food, fuel and transportation costs, the agency said yesterday. Quispe today said that inflation may end 2010 at 3 percent.

Private investment spurred a 16 percent increase in domestic demand for goods and services in May, the fastest pace in 20 months, according to the central bank.

South America’s sixth-largest economy expanded 9.2 percent in May from a year earlier, and may post growth of close to 10 percent in June, central bank President Julio Velarde said July 22. The statistics agency is scheduled to publish is June gross domestic product report on Aug. 16.

Although prices remain under control, rapid economic expansion risks fuelling inflation, Velarde said.

“As long as internal demand is projected to see vigorous growth, the monetary stimulus will continue to be withdrawn,” Velarde said.

Central bank policy makers raised the benchmark lending rate to 2 percent on July 8, the third straight monthly increase.

The sol gained 0.1 percent to 2.8165 per dollar at 1:39 p.m. New York time from 2.8200 on July 30. The sol has gained 2.5 percent in 2010, the eighth-best performance against the dollar among 26 emerging market currencies tracked by Bloomberg.

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