Peru’s Inflation Unexpectedly Picks Up With Rising Food Prices

Peru’s inflation unexpectedly accelerated in June, with consumer prices in Lima rising 4.01% year-over-year, exceeding both the 3.81% forecast and the central bank’s 1%-3% target range for a fourth consecutive month. The increase was driven by rising food costs, a domestic gas crisis, global fuel price spikes, and adverse weather damaging crop yields. Month-over-month prices climbed 0.23%, reversing May’s 0.16% decline and topping the 0.06% estimate. Central Bank Governor Julio Velarde maintains that the inflation spike is temporary and expects a return to the target range by early 2027, seeing no reason to raise the 4.25% interest rate. However, an upside risk looms from the Coastal El Niño event, which could bring heavy rains and floods through March, further disrupting infrastructure and crops. The bank’s next policy meeting is July 9, just weeks before President-elect Keiko Fujimori takes office on July 28. Fujimori’s inauguration marks her fourth presidential bid and makes her Peru’s ninth leader in a decade, underscoring deep political instability. Her slim electoral victory adds uncertainty to economic policy direction, especially as inflation pressures persist. The combination of stubborn inflation, climate risks, and political turnover creates a fragile outlook for Peru’s economy, which had previously enjoyed one of the lowest inflation rates among emerging markets. What to watch next: The central bank’s July 9 rate decision and any shift in tone from Governor Velarde, as well as the severity of the Coastal El Niño’s impact on food supply and infrastructure through early 2025.