What the less well-covered PPI number shows is that there's still a lot of inflation left in the pipeline, and this shows just how much bull was served up by Twobreakfasts & Co when they blamed it all on imported inflation earlier in the year. Meanwhile, the self-important stuffed suits that get paid to say the obvious about these things (aka professional economists and analysts) noted this month that inflation is being driven by internal demand. This is a nice way of saying the economy is overheating and things must either back off now and aim for a soft landing, or the end will not be as sweet.
But even the headline figures underestimate the real inflation in Peru. Let's point out yet again that the numbers we are fed are for the Lima and Metropolitan area alone, and only take into account the lifestyles of 30% of the nation's population. Ongoing inflation in the rest of the country is even worse than the Lima numbers, as this chart demonstrates.
This chart shows the aggregate inflation for 2008 January to July (the split-down numbers for August aren't available yet) in 25 majors cities nationwide. Of the cities, just four of them are running an inflation rate lower than that of Lima+Metro. Those four (Puno, Cajamarca, Iquitos and Ayacucho) have a total population of 810,897, according to census figures. Add Lima+Metro, and even the most exaggerated figures for the outlying Lima area leave us under 10 million people accounted for. So the rest of Peru's 28 million people suffer inflation higher than the rate that's fed to an unsuspecting world (for the record, 76% of Peru's population is in the urban areas, so the above city numbers can be taken as fairly representative of the final total). And even then, all this is using the official figures that are widely criticized as inaccurately low by all and sundry inside Peru, but that's another story for another day.
Going back to the first chart, note that monthly CPI for September 2007 was 0.61%. So if this month's figure can come in under that, YoY inflation will drop slightly, and no doubt we'll be treated to a demagogue's round of "inflation is now under control" BS from President Twobreakfasts. But then come October and November, and with the aggregate inflation at just 0.42% for the same period in 2007, we could easily see the YoY figure for Lima+Metro break 7% come the end of the year. It makes me wonder how normally wise heads like PPK can call inflation at 3% year's end. Either he'd been smoking some seriously strong ganja, or he was trying to pump up interest in his flagging mutual funds that are heavily exposed to the region. Either way, it's fairytale dreamland stuff.