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RGE Analysts

Peru Expected to Grow 6.3% in 2011

Peru’s central bank released its January monthly survey, where inflation expectations for 2011 remained anchored at 2.5% y/y for the fourth straight month (RGE: 2.9% y/y), while inflation for 2012 was revised down to 2.30% y/y (RGE: 2.3%) from 2.50% y/y. Meanwhile, GDP expectations for 2010 were revised up to 8.7% y/y (RGE: 8.8% y/y) from 8.5% y/y and for 2011 to 6.3% y/y (RGE: 7.3% y/y) from 6% y/y. Analysts expect a stronger exchange rate for year-end 2011 than in the last survey, closing at USD/PEN2.75 (RGE: USD/PEN2.76) from USD/PEN2.78 previously.

Our higher-than-expected inflation for 2011—compared with the consensus—is in response to our view that GDP will continue to grow well above potential, in a context of a positive output gap, while the currency might have limited room to appreciate, facilitating the inflationary impact stemming from abroad on local prices—due to elevated commodity prices and above trend global growth. Needless to say, we think that ahead of the curve actions by the Peruvian central bank will likely keep inflation from moving away from the target range.

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients, LatAm Focus: Brazil’s Growth Expected at 4.5% in 2011; Chile to Continue Tightening

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Richard has published papers on wages policy, the taxation of financial arrangements and macroeconomic issues in Pacific island countries. Views expressed in these articles are his own and may not be shared by his employing agency. He is the author of How to Solve the European Economic Crisis: Challenging orthodoxy and creating new policy paradigms