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Peru inflation continues to rise in June, business confidence dips

Staff Writer |
Consumer prices in Metropolitan Lima increased 0.33% month-on-month in June, above May’s 0.02% subdued rise.

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June’s increase was mainly the result of higher prices for transport and communication, as a result of the increase in the selective consumption tax approved in May, as well as for food and beverages. On the other hand, lower prices were recorded for domestic propane gas.

Meanwhile, inflation rose. It increased to 1.4% in June, up from 0.9% in May, moving further away from March’s over seven-year low.

In May core consumer prices, which exclude energy and food, increased 0.4% from the previous month, above May’s softer 0.2% increase. Finally, core inflation rose to a six-month high of 2.3% in June, above May’s seven-year low of 2.1%.

The Central Bank expects inflation to end 2018 at 2.0%. Panelists participating in the LatinFocus Consensus Forecast expect inflation to end 2018 at 2.8%, which is up 0.1 percentage points from last month’s projection. For 2019, the panel expects inflation of 2.7%.

Peru’s trade balance recorded a $459 million surplus in May, widening from April’s $398 million surplus as well as from the $363 million surplus recorded in the same month of last year.

Growth in exports remained robust in May, coming in at 16.4% year-on-year expansion from April’s strong 23.0% increase.

Growth came mainly on the back of soaring overseas sales of copper, gold and natural gas as well as of petroleum products.

Higher exports of fishery, agricultural, chemical and textile products also contributed to the expansion.

Behind the positive result was an increase in the price of Peru’s exports, while volumes remained virtually unchanged.

Meanwhile, imports rose 15.3% annually in May, on higher purchases of fuels, transport equipment and capital goods for the agriculture sector slightly below April’s 16.0% growth.

In the 12 months leading up to May, the trade surplus was $7.2 billion, above April’s $7.1 billion and the highest reading since July 2012.

Panelists participating in the LatinFocus Consensus Forecast see exports growing 5.7% in 2018 and the trade balance recording a surplus of $4.3 billion. For 2019, the panel sees overseas sales expanding 5.1% and forecasts a trade surplus of $4.1 billion.

The business confidence indicator ticked down to 58 in June, below May’s 60. However, the indicator remained comfortably above the 50-point threshold that separates optimism from pessimism, indicating that businesses grew more optimistic in June.

Driving the decrease in business sentiment was a broad-based but slight deterioration in expectations on the both the near-future and the medium-term.

Firms had less favorable expectations on demand levels, the company’s economic situation and the sector’s economic situation in the next twelve months.

Moreover, they had less favorable expectations on the company’s economic situation and the sector’s economic situation in the next three months. In addition, they had worse assessments of the current business situation.

On the other hand, their hiring expectations improved somewhat, and their assessments of both their current production levels and sales improved.

Panelists expect fixed investment to contract 4.9% in 2018, which is unchanged from last month’s forecast. For 2019, panel participants see investment growing 3.8%.

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