Peru has seen a remarkable decline in its annual inflation rate, with figures hitting a two-year low in May. Data from the nation's capital, Lima, revealed that annual inflation dropped to 2%, surpassing economists' expectations. This marks the lowest inflation level since December 2020 and represents a significant achievement for Peru's central bank, which has been gradually reducing interest rates.
The central bank's President, Julio Velarde, had previously indicated that May's inflation rate could be close to zero, a forecast that seems to have been fairly accurate. Looking ahead, Velarde anticipates that the cost of living will see modest increases, projecting a year-end inflation rate between 2% and 2.2%.
Peru's economic recovery from its second-worst recession in over three decades has been challenging, with factors such as social unrest, adverse weather conditions, and political turmoil contributing to the economic downturn. Finance Minister Jose Arista has criticized the central bank for its perceived slow pace in easing monetary policy. In response, Velarde defended the bank's measured approach, noting that faster rate cuts may have limited impact given the current state of the economy.
The central bank is set to convene on June 13 to announce its next interest rate decision. Following several rate cuts that have brought borrowing costs down to 5.75% from a peak of 7.75% last year, the central bank will assess the ongoing economic conditions to determine its future monetary policy stance.