Market inflation expectations remain misaligned with respect to the CPI

Market inflation expectations remain misaligned with respect to the CPI

The inflation reached 4.11% and reached its lowest level in the last 18 years, according to the latest CPI prepared by the INE, although market expectations regarding price developments continue to be out of line, despite the fact that some have corrected their forecasts downwards.

This arises from the latest bulletin on “Evolution of prices and inflation expected by agents” published by the Central Bank of Uruguay (BCU), an entity that considered the market projections to be decisive, which continue to be misaligned, with an average of 6.83%, above the ceiling of the target range, which is between 3 and 6 percent.

Is that in the inflation year-on-year declined in August to 4.11%, the lowest record since September 2005. The percentage, below the center of the target range, implies a reduction of almost 70 basis points compared to July and more than 540 basis points compared to same month of 2022.

By observing the behavior of the CPI, They considered it “result of an increase in the month of the housing and transportation divisions, mainly due to the increase in fuel and rent.” However, they pointed out that this situation was “partially offset by a reduction in the prices of food and alcoholic beverages, especially fruits and vegetables, meat and dairy products, as well as the clothing and footwear division.”

graphic c.jpg

Chart: BCU

Inflation expectations remain between 6 and 8 percent

Against this background, the BCU considered that the inflation what economic agents expect “is decisive for the behavior of prices in the medium and long term”. In such a case, the expectation of the analysts, which is compiled in a survey by the Central bank, It is located in the order of 6.32%, although it comes from a decrease compared to the previous record.

Something similar happened with the financial markets, which also lowered their projection during August and stands at 6.18%, the lowest level. In contrast, the forecasts of businessmen are the highest, since they have remained at 8% since December 2022, the last month in which they were reduced.

The projection of the BCU and interest rates

In turn, the central bank estimates that inflation will remain within the target range during the 24 months, with an average of 5.3% projected in the monetary policy horizon, according to the analysis that takes into account factors such as the international and regional situation, economic activity and the labor market, the exchange rate, rates, salary dynamics and inflation expectations.

The entity that leads Diego Labat He specified that “on this basis, simulations are made with movements of the reference interest rate of the monetary policy”, which today is in the order of 10%, after the recent cut of 75 basic points.

Source: Ambito

Leave a Reply

Your email address will not be published. Required fields are marked *


Latest Posts

Chimney sweep: Gold for Tobias

Chimney sweep: Gold for Tobias

Tobias Lehner is the best young chimney sweep in Austria. Image: WKO The young Mühlviertler is in training at the Klaus Oberhaidinger chimney sweep company