Inflation Surpasses Forecasts
Peru’s capital, Lima, experienced a faster-than-expected increase in consumer prices in July as food and transport costs climbed. Annual inflation in the city stood at 4.07%, according to the INEI national statistics agency, surpassing the median economist’s estimate of 3.92%.
Transport prices had the steepest rise, surging 14.30% compared to the same period last year. Restaurants and hotels followed with a 4.18% rise, while food and non-alcoholic drinks increased by 3.46%.
Challenges for the Central Bank
The Peruvian central bank has maintained an inflation target range of 1% to 3% but has seen prices exceed the upper limit for five consecutive months. Although officials predict a return to target by early next year, risks remain tilted toward the upside, particularly with El Niño potentially raising food prices later this year.
The central bank will review its benchmark interest rate on August 13, with the policy rate held steady at 4.25% for ten months. Officials have yet to signal a rate hike despite the continued inflationary pressure.
Economic Outlook Under Fujimori
Despite the inflation challenge, Peru's economy is forecast to grow more than 3% this year, driven by robust metal prices and private consumption. The new government under conservative President Keiko Fujimori has appointed Elmer Cuba to lead its economic strategy and has secured Julio Velarde for another term at the central bank.
Fujimori has pledged to ensure fiscal sustainability, cut regulatory hurdles to promote investment, and support small enterprises to increase formalization. Her administration is seeking temporary authority from Congress to govern by decree on critical security and economic policies.