After moving above 7.0% in January, inflation reached 7.7% in February, the highest level since May 2005. The adjustment in the prices of administered goods and services is the main factor behind the recent increase in domestic prices. We expect inflation to remain at exceptionally high levels in March, to moderate somewhat afterwards and close the year at 6.9%.
Monthly inflation reached 1.22% MoM pressured, among other factors, by the impact of higher taxes on fuels
Inflation surprised to the upside in February (BBVA forecast: 1.05% MoM / 7.52% YoY; consensus: 1.05% MoM / 7.54% YoY). The main inflationary pressures came from the transport and education components (2.2% MoM and 5.9% MoM). In the first case this was due to the impact of higher taxes on fuels as well as the adjustments in public transport tariffs while in the second one the yearly increase in school fees (which traditionally occurs in the month of February) were behind the sharp increase in prices. Inflation was also driven upwards by the hikes in electricity tariffs (3.1% MoM) and increasing food prices (0.8% MoM). Administered prices inflation reached 2.4% MoM (9.7% YoY) while tradable and non-tradable inflation came in at 0.6% MoM (5.9% YoY) and 1.1% MoM (8.2% YoY), respectively, in February.
We revised our forecast for inflation at the end of 2015 to 6.9%
The impact of the fiscal policy tightening on inflation, through both hikes in administered prices and higher taxes, has been higher than we expected. In addition, the exchange rate depreciation is somewhat stronger than we anticipated. Taking these factors into consideration, we adjust our 2015 inflation forecasts upward. We now expect inflation to reach 7.8% in March, to oscillate around 7.5% for some months and then close the year at 6.9%. The worsened outlook for inflation supports the view that the BCB will continue to adjust the SELIC rate ahead.
Monthly inflation reached 1.22% MoM pressured, among other factors, by the impact of higher taxes on fuels
Inflation surprised to the upside in February (BBVA forecast: 1.05% MoM / 7.52% YoY; consensus: 1.05% MoM / 7.54% YoY). The main inflationary pressures came from the transport and education components (2.2% MoM and 5.9% MoM). In the first case this was due to the impact of higher taxes on fuels as well as the adjustments in public transport tariffs while in the second one the yearly increase in school fees (which traditionally occurs in the month of February) were behind the sharp increase in prices. Inflation was also driven upwards by the hikes in electricity tariffs (3.1% MoM) and increasing food prices (0.8% MoM). Administered prices inflation reached 2.4% MoM (9.7% YoY) while tradable and non-tradable inflation came in at 0.6% MoM (5.9% YoY) and 1.1% MoM (8.2% YoY), respectively, in February.
We revised our forecast for inflation at the end of 2015 to 6.9%
The impact of the fiscal policy tightening on inflation, through both hikes in administered prices and higher taxes, has been higher than we expected. In addition, the exchange rate depreciation is somewhat stronger than we anticipated. Taking these factors into consideration, we adjust our 2015 inflation forecasts upward. We now expect inflation to reach 7.8% in March, to oscillate around 7.5% for some months and then close the year at 6.9%. The worsened outlook for inflation supports the view that the BCB will continue to adjust the SELIC rate ahead.
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