Bloomberg News

Peru Consumer Prices Jumped Most in More Than Three Years

August 01, 2011

(Updates food prices in ninth paragraph, annual inflation in tenth.)

Aug. 1 (Bloomberg) -- Peruvian consumer prices rose at the fastest pace in more than three years in July, double what analysts were expecting, fueling speculation the central bank is getting closer to raising borrowing costs.

Inflation accelerated 0.79 percent last month, according to a statement published today in the Official Gazette. Economists expected a 0.31 percent increase, according to the median estimate of 10 analysts surveyed by Bloomberg.

Peru’s economy is expanding faster than expected even after companies scaled back spending ahead of the June 5 presidential election. President Ollanta Humala announced an investor- friendly Cabinet, which will probably allow economic activity to remain “strong” in the second half of 2011, sparking inflation pressures, said Carola Sandy, an economist at Credit Suisse AG.

“The slowdown doesn’t seem to be as big as people thought,” Sandy said in a phone interview from New York before the number was released. “That will translate into faster inflation and require the central bank to put the brakes on in the third quarter.”

Policy makers led by bank President Julio Velarde left Peru’s benchmark lending rate unchanged for a second straight month July 7, citing slower inflation, a deceleration in some parts of the economy and concern about global growth.

Gross domestic product rose 7.1 percent in May from the year before, according to the statistics agency. While the figure was the lowest in 15 months, it beat the 6.7 percent median estimate from 10 analysts surveyed by Bloomberg.

Cabinet Linchpin

Humala retained Velarde as central bank president, and named as Miguel Castilla as his finance minister, making him the linchpin of a Cabinet that include five businessmen and seven officials who served previous governments.

The sol weakened 0.2 percent to 2.7425 per U.S. dollar at 2:14 p.m. New York time, from 2.7382 on July 29.

Food prices rose 1.6 percent last month from June, the fastest since March 2008, while the cost of fuel, electricity and bus fares also increased, the agency said in an e-mailed report. Chicken accounted for half the rise in overall consumer prices.

The annual inflation rate quickened to a 26-month high of 3.35 percent in July, from 2.91 percent in June, the agency said. The rise in monthly inflation was the biggest since March 2008, when prices rose 1.04 percent.

The central bank targets annual inflation in a range of 1 percent to 3 percent.

The government’s consumer price index is based on a survey of establishments conducted by the agency in the Lima metropolitan area. Food and drink account for 38 percent of the index.

--Editors: Harry Maurer, Joshua Goodman

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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