BCR: Inflation to remain high in July

The Central Reserve Bank (BCR) predicted that inflation will start to fall from this month of July, but can this estimate be met?

A recent BCR statement indicated that inflation is expected to be on a downward trend this month due to the softening impact of international food and energy prices and an economy that is still below its potential level.

However, the currency assumes that inflation will still be high in July as it continues to be pressured by commodity prices. food and transport.

“In July, the inflation rate will still be high in an environment where prices are rising, the scale was high (…) We expect the annual inflation rate to be lower, but July, unfortunately, will be high, we observe that it lower than in June,” commented Adrian Armas, chief economic research manager at BCR.

Armas explained that the expected reduction inflation This will not be immediate, but it is expected that this will be seen gradually.

“The level of food and fuel prices is quite high, but if we compare it with May and today, July 8, we will see that wheat prices are lower. The cost of fuel is somewhat lower. This effect is expected to dampen the pressure on domestic inflation, it will not be immediate, but we hope that it will gradually soften,” he said during a recent presentation of the BCR monetary program.

The money object indicates that inflation it will return to the target range of 1% to 3% in the second or third quarter of next year. But this inflation forecast is over-biased.

At the end of the year, the BCR Macroeconomic Outlook Review indicates that economic analysts and companies estimate inflation in the range of 6% to 7%. At the moment, it is assumed that inflation over the past twelve months rose to 8.81% in June.

To mitigate this situation, BCR continues to raise interest rate relative to 6%, and indicate that the evolution of the economy will continue to be observed for new changes in monetary policy.

“The Council noted that inflation expectations have increased, the development of the economy is within expectations, so the interest rate continues to rise. The goal of the BCR is to bring back inflation once the economy has absorbed the supply shock. to the target range,” Armas said.

Among the variables to be taken into account in the coming months are economic evolution The United States, where they are warning of a recession, and the situation in China, where the impact of a zero-tolerance policy towards COVID-19 is observed.