Peru Inflation Doubles Forecast as July Prices Jump Most in Three Years

Peruvian consumer prices rose at the fastest pace in more than three years in July, double what analysts were expecting, fueling speculation the central bank is getting closer to raising borrowing costs.

Inflation accelerated 0.79 percent last month, according to a statement published today in the Official Gazette. Economists expected a 0.31 percent increase, according to the median estimate of 10 analysts surveyed by Bloomberg.

Peru’s economy is expanding faster than expected even after companies scaled back spending ahead of the June 5 presidential election. President Ollanta Humala announced an investor- friendly cabinet, which will probably allow economic activity to remain “strong” in the second half of this year, sparking inflation pressures, said Carola Sandy, an economist at Credit Suisse AG.

“The slowdown doesn’t seem to be as big as people thought,” Sandy said in a phone interview from New York before the number was released. “That will translate into faster inflation and require the central bank to put the brakes on in the third quarter.”

Policy makers led by bank President Julio Velarde left Peru’s benchmark lending rate unchanged for a second straight month July 7, citing slower inflation, a deceleration in some parts of the economy and concern about global growth.

Gross domestic product rose 7.1 percent in May from the year before, according to the statistics agency. While the figure was the lowest in 15 months, it beat the 6.7 percent median estimate from 10 analysts surveyed by Bloomberg.

Humala retained Velarde as central bank president, making him the linchpin of a cabinet that include five businessmen and seven officials who served previous governments.

The government’s consumer price index is based on a survey of establishments conducted by the agency in the Lima Metropolitan area.

Bloomberg

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net