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Peru's headline inflation in March: 1.04%

As part of this post a couple of weeks back, I mentioned that Peru's inflation rate had
"...climbed 1% in February...... The gov't claims it was due to the landslides and the protests that cut supply lines to Lima. ...... I'll believe them this time, but any more of those 0.5% monthly inflation numbers and Carranza's inflation targeting will belong in Franz Kafka's world, not mine...."

So let's welcome all cockroach-humans to the show, because Peru's March inflation figure for Lima and Metro came in at 1.04%. Holy unpopular presidents, Batman!

What's the problem here?

1) YoY inflation is now 5.6%
2) The gov't's inflation target of 3% maximum for the whole of 2008 has already been blown out of the water.
3) The moneydudes will almost certainly hike interest rates to stop this outbreak.
4) The Peruvian Sol has already done this....

.... and under higher national interest rates it can only go higher vs the greenback. With Exporters already squealing from the pain, the fast rise in non-commodity exports (such as the quickly expanding agro export sector, led by asparagus farming) will be hit hard.
5) etc etc...err...dude. Meaning there are plenty of other knock-on effects.

Carranza prepares inflation data for the next press conference

But, one of the major problems here is political and not economic. Every Peruvian over the age of 40 remembers what a hash Alan Garcia made of things in his first presidency in the 1980s. Alan brought economic meltdown upon Peru due to bad decision-making. That's something not even the ruling APRA party can argue with. This time round, he's promised to be good and kind and has repeatedly said that he has learned from his previous errors, so the combo of Alan and APRA in power and then suddenly a big surge in inflation is a very unstable mix indeed.

It may well be true that circumstances are different this time around, and it may well be true that Garcia is following a wiser economic model, and it may well be true that external forces are to blame for this inflationary outbreak and the gov't is innocent, but that won't matter a jot to the people of Peru.

Now, there's plenty more to say about these inflation figures, but the details can wait for another post (I got accused of rattling on too long last week, and it's still stinging, SB). But one thing to point out is all that gov't line about middlemen pumping up prices has been shown to be total BS, as wholesale prices rose 0.84% in the period too. With retail prices up 2.18% in the first three months of the year and wholesale prices up 2.23%, Alan will have to find another excuse. But hey....Otto's always on hand to oblige. Last week, I floated an idea over to Alan about who to blame next. Let's see how long it takes, eh...........