The CPI for Greater Buenos Aires was published last week by the INDEC. The headline component increased 1.2% and the core component, 1.7%.
With these results, the second half of 2016 concludes with an average monthly headline inflation rate of 1.4%, equivalent to an 18.5% annualized rate. Moreover, the published data confirms that the BCRA met its first inflation target—as set in the Monetary Policy Release of June 14, 2016—of a 1.5% or lower monthly change in the last quarter of 2016. In fact, the monthly change stands at 1.3% when averaging the period to account for unforeseen utility rate fluctuations at the time the target1 was announced.
The 1.7% core inflation rate in December matches the monthly average for this component during the second half of 2016. The BCRA considers that core inflation should settle at a lower and declining level in the coming months, facing a year in which regulated price increases are expected to surpass those of other CPI components.
Estimates and high-frequency indicators from both public and private sources monitored by the BCRA show heterogeneous signals regarding price trends in the early days of January. The BCRA remains attentive to the forthcoming developments of these variables.
Based on all the available information, the institution has decided to keep its monetary policy rate, the center of the 7-day repo corridor, unchanged at 24.75%. In order to consolidate a corridor where rates accurately reflect the monetary policy rate, the BCRA decided to reduce its width to 150 basis points.
The BCRA will continue taking anti-inflationary measures to ensure a sustained disinflationary process towards its inflation target between 12% and 17% this year.
1. At the presentation of the Monetary Policy Report on October 18, the BCRA announced that, in order to assess its inflation target for the last quarter—set before the court decision that led to the utility rates changes—it would calculate an average of the August-October inflation rate for October, which includes both the fall and the rise in gas prices. This is a revision with offsetting biases: the increase in utility rates was lower than the reduction; however, the inclusion of August and September incorporates months prior to those initially expected, and therefore inflation tends to be higher given the ongoing disinflationary path.
