Peru’s Faster-Than-Expected CPI Reduces Chance of Rate Cut

Peru’s inflation rate slowed less than economists expected last month, reducing the chances the central bank will cut borrowing costs at their next meeting.

Consumer prices rose 0.31 percent in October, the national statistics agency said today in an e-mailed report. The inflation rate was forecast to slow to 0.2 percent from 0.33 percent in September, according to the median estimate of 13 analysts surveyed by Bloomberg. Prices rose 4.2 percent on an annual basis.

Central bank President Julio Velarde forecast on Sept. 16 that inflation will remain below 0.2 percent in the final four months of this year as international grain prices ease. Policy makers are ready to cut interest rates if growth in the world economy deteriorates, he said. Rising prices and faster-than-expected economic growth in July and August make a rate cut less likely in the near term, Roberto Melzi, a Latin America Strategist at Barclays Capital Inc., said in a phone interview from New York before today’s release.

“Policy makers aren’t that worried about the growth-inflation mix,” said Melzi, who met with Velarde during a visit to Lima last month. “Domestic demand isn’t decelerating as much as in Chile for example but on the other hand it’s not accelerating either. Our expectations of near-term easing appear to be at risk.”

Growth Accelerated

Year-on-year economic growth accelerated to 7.5 percent in August from 6.5 percent in July and 5.3 percent June as retail sales and fishing output expanded.

Food prices rose 0.6 percent last month compared with a 0.3 percent increase in September as rising costs for fruit and vegetables offset a drop in chicken prices, the statistics agency said. Clothing costs climbed 0.3 percent while electricity rose 0.6 percent.

The government’s consumer price index is based on a survey in the Lima Metropolitan area.

The central bank increased its benchmark lending rate five times in the first half of this year after inflation quickened to a three-year high. Policy makers have kept the rate at 4.25 percent since June as inflation slowed and domestic activity eased. The bank will next review its rate policy on Nov. 10.

The central bank is ready to “unleash all the instruments we have at our disposal” to protect Peru from a global crisis, monetary policy manager Jorge Estrella said Oct. 7.

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