Peru not seen hitting inflation target this year

Bnamericas Published: Wednesday, January 18, 2023

The expectation of Peru’s central bank that inflation will return to the target range of 1-3% by the end of this year is seen as optimistic given the new reality that the country is going through. 

Internal risks such as protests and road blockades have a negative effect on prices, and there does not seem to be a clear way out of the social unrest.

Added to this scenario is the demand to bring forward general elections to this December, a process that usually impacts prices and the exchange rate given the uncertainty of the result. The Peruvian market consensus indicates that, for now, inflation is likely to come in at between 4.1% and 4.5% this year.


In 2022, Peru’s inflation was 8.46%. Despite the fact that the central bank made progressive increases in the target rate, 12-month inflation has been above 8% since April. The lowest point was October (8.28%), but it rose again in November to 8.45%.

The target rate rose from 4.5% in April to 7.5% in December –and today it is at 7.75%. Although the hikes in the rate have prevented inflation from shooting up higher, they have not been able to reverse the trend. At the beginning of 4Q22, the market expected the rate to reach a maximum of 7.5% and remain at that level during 2023, but that is no longer the case.

According to Scotiabank Perú's economic studies area, inflation in January has moved higher due to the impact on local food prices – fruit, vegetables and tubers – of the social protests and road blockades, and further increases in the target rate are not ruled out.

For its part, Credicorp Capital estimates that the central bank could raise the rate to 8% in 1Q23 and gradually cut it towards the middle of the year and close 2023 at 6.75%. However, "the risk could be of lower cuts if new factors (road blockades, lower agricultural supply due to weather factors) prevent a marked decline in inflation and its expectations," the entity said in a report.

Although both banks expect inflation to be much lower than in 2022, their estimates do not coincide with those of the monetary authority. Scotiabank raised its forecast for inflation to 4.5% this year from 4%, while Credicorp maintains an estimate of 4%.


In Peru, electoral processes tend to put business decisions on hold, and have an impact on the exchange rate. According to Credicorp, "the closeness of the electoral process could lead to postponing and/or reducing the BCRP [central bank] rate cut so as not to affect the rate differential and avoid exacerbating depreciatory pressures on the exchange rate."

Although bringing forward the elections by two years to April 2024 was approved by the government, protesters have been calling for them to be held this December 2023. Despite the fact that such a move would not solve the underlying problems – such as the limited time to debate reforms and register new political representatives – the latest Ipsos Perú survey indicates that 52% of the population prefer elections in 2023 with few changes rather than in April 2024 with the possibility of introducing further reforms.

This is explained, in large part, by the disapproval of President Dina Boluarte and her mishandling of the protests, clashes that have left almost 50 dead since she took office last month after the ousting by congress of Pedro Castillo. According to Scotiabank, the crisis of the last month would have caused GDP to grow only 1% in December.

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