Peru’s Inflation Speeds Past Forecasts to Reach 24-Year High

(Bloomberg) -- Peru's annual inflation reached its fastest pace in 24 years, surprising economists and posing yet another challenge for President Pedro Castillo, who's facing a strike by truckers and farmers that is adding to local food costs.

Consumer prices in Lima rose 6.82% in March from a year earlier, the most since Aug. 1998, the national statistics bureau said on Friday. Prices climbed 1.48% from February, above the median forecast for a 0.92% increase in a Bloomberg survey of economists.

Higher commodity prices caused by Russia's invasion of Ukraine are among the main drivers of inflation in Peru, with transportation costs rising 1.89% on the month. That's creating a political problem as truck drivers began a nationwide strike on Monday to protest against rising fuel costs. Major food distribution centers in the country's capital have said they're running out of stock, which has caused prices to consumers to rise even further over the past few days.

“There are several things that have come together in a month: the international conflict, the government's delay in subsidizing fuel, the truck drivers strike,” Juan Carlos Odar, director of Phase Consultores, said in a phone interview. “All of this has contributed to inflation in March to be extraordinarily high.”

Read More: Peru Talks With Farmers, Truck Operators in Central Region Fail

All baskets of products and services followed by the statistics bureau increased in price last month, with food becoming 3.42% more expensive and education costs rising 2.84% as a new school year began.

Prices are rising much faster than the central bank's target of 2%, plus or minus 1 percentage point, and policy makers are expected to boost interest rates for a ninth consecutive time next week. The bank last month raised its 2022 inflation estimate to 3.6%, and president Julio Velarde is no longer sure it will return to the target range in the first half of 2023, as previously estimated.

The combined trucker and farmer strikes are likely to keep adding pressure in the short term.

“April's annual inflation is going to break 7% in the absence of a response from the government,” Odar said.

Political Crisis

Inflation is compounding the latest political crisis for Castillo, who earlier this week survived another impeachment attempt by congress. His already declining popularity could fall even faster as young Peruvians experience soaring prices for the first time in their lives.

Farmers who catapulted him into the presidency last year are also increasingly angry as fertilizer prices jump. One of their leaders said the president has abandoned and betrayed those he has promised to represent.

In an interview on Wednesday, former Finance Minister Pedro Francke warned that Castillo isn't assessing well enough the impact of fast-rising prices on the population.

“If the government doesn't respond quickly to inflation, Castillo's popularity could rapidly erode with significant social and political consequences,” he said.

Read More: Peru Presidency Could be Further Hurt by Inflation, Francke Says