Tuesday, 14 October 2008

U.S.-born global financial crisis metastasized: Peru’s year-end inflation expected to top 7.6 percent

Peru's average national inflation rate is expected to rise well beyond the Central Bank's set goal of 2 percent to a decade-high of 7.6 percent by the end of 2008, according to Lima's Chamber of Commerce, or CCL.

Imported inflation, which occurs when imported raw or partly-finished goods become more expensive, often as a result of currency depreciation, no longer drives inflation in Peru. According to the CCL, 75 percent of inflation is due to internal factors, such as a greater internal demand for goods.

“Before, external factors were the most important component of inflation,” CCL Economic Institute’s Director, César Peñaranda, told daily La Republica. “But now, they have reduced the prices of food and oil. The Central Bank’s measures are good and couldn’t be any more forceful because that would complicate the economy.”

Peru’s average national inflation rate for the first eight months of this year registered at 4.7 percent, beyond the Central Bank’s set goal of 2 percent, and rose slightly from 0.56 percent in July to 0.59 percent in August. Consumer prices rose 0.57 percent in September, and transportation costs have surged.

But, Peru’s Central Bank, who in August lifted deposit requirements for borrowers in an attempt to control inflationary pressures, has yet to budge on its benchmark interest rate fixed at 6.5 percent.

“This decision is based on the high level of uncertainty concerning the world economy’s evolution and the impact it will have on global economic activity, our exports and imports’ international prices as well as the international financial flows,” said a representative of the Central Bank Thursday after a monthly monetary policy meeting.

“We must emphasize that recently prices have fallen for raw material and oil, that imported food prices tend to fall, and that this favors the gradual reduction of inflation in the country.”

Article courtesy of the Peruvian Times.

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