Annual US inflation reached 5% in May: Is there an impact on the Peruvian economy?

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The inflation on USA it rose 0.6% in May, even above the market forecast (0.5%). This is the fourth consecutive month in which growth has been registered, with which the annual rhythm also rose from 4.2% in April to 5.0% in May.

From the Economic Studies area of Scotiabank Peru indicated that the Annual indicator represents the highest level in 13 years.

“The inflation without food or energy it rose from 3.0% to 3.8% in the same period, the highest rate in 29 years “, they complemented.

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Factors

Mario guerrero, head of the aforementioned area, indicated that one of the factors of this major hike is that their basis of comparison is low, due to the impact of the pandemic. In the context of the pandemic, EE.UU. Under his interest rate reference to 0%. This has been the FED’s main argument for not taking an alarmist stance and considering that the effect is transitory.

Guerrero specified that this was even repeated in other countries with robust economies, since in line with the restrictions the price rhythm was reduced.

To its turn, Luis Fernando Alegria, Senior Macroeconomics and Strategy Analyst SAB Seminar, he complemented that there are two factors related to supply that explain this result.

Despite the latest inflation results, the Fed has insisted that it will maintain its expansionary policy.  (Photo: Agencies)
Despite the latest inflation results, the Fed has insisted that it will maintain its expansionary policy. (Photo: Agencies)

“The pandemic has generated disruptions in the value chains, which ends up limiting the supply of goods to grow substantially. The other factor is that its economy is rebounding, but there is a labor shortage, because there is an unemployment bonus, and wages are increasing “, he specified.

Luis Eduardo Falen, head of macroeconomics of Intellectual SABHe added that the fear in the face of this inflation scenario is that the US economy would be overstimulated, so that the Fed would finally remove fiscal stimuli and reverse its expansionary policy.

“The most important thing is not inflation. They are willing to see this indicator above their projections. They care about their job market. EE.UU. has important tax plans in process ”, Falen commented.

LOCAL IMPACT

Alegría explained that high inflation in the US would impact Peru on the financial side (entry and exit of dollars, capital outflow) and due to its impact on the reference interest rate, which ends up determining financing costs.

“Yes in EE.UU. they have one inflation above the projected they will have to raise their interest rate (today from 0%). This today means dollars and cheap funding. But if it starts to rise, the dollar strengthens, among others “he commented.

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However, The three economists agreed that there will not be an impact at present, because this result in US inflation will not motivate the Fed’s retreat in the application of its expansionary policy.

“As long as it is a transitory result, the FED has said that it will maintain its expansionary policy. What the central banks are looking for is that the economies consolidate their recoveries, they do not want to withdraw their stimuli and they would not do so until mid-2022“Guerrero commented.

Alegría commented that the inflationary result in the US will not affect Peru in the short term, because the central banks have deviated their analysis goals on inflation and the current one does not worry.

“It will only react if inflation grows above that estimated by demand factors”, precise.

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