Peru had the lowest inflation among Latin America’s major economies — a distinction it earned through disciplined monetary policy and stable commodity dynamics. That record is now under siege from an explosion in the Amazon. On March 1, a leak and deflagration at kilometer 43 of the Camisea natural gas liquids pipeline in the Cusco region’s Megantoni district forced an immediate shutdown of the system that supplies virtually all of Peru’s natural gas, the country’s second-largest source of electricity.
Within hours, the government declared a national gas supply emergency. Energy Minister Angelo Alfaro told Congress that supply had fallen to 9% of capacity. All gas exports were halted. Pluspetrol, the field’s operator, suspended LPG production at its fractionation plant in Pisco, which supplies roughly 70% of domestic LPG demand. Thermoelectric plants were switched to diesel backup. Private vehicles in Lima were cut off from compressed natural gas, affecting more than 335,000 cars.
The Price Cascade
The disruption is rippling through the economy in real time. Taxi drivers, who overwhelmingly run on natural gas, have been forced onto gasoline that costs up to 70% more. Gasoline prices rose 2 soles ($0.59) per gallon last week, a 13% increase, according to Scotiabank economist Ricardo Ávila. Taxi fares are expected to climb roughly 10%. In Lima, diesel surged 4.8% in a single week, compounded by the global oil price spike from the Iran conflict. LPG, whose production depends directly on the shuttered Camisea plant, rose 0.55%.
The gas crisis arrives alongside other inflationary pressures already building in March: El Niño weather patterns disrupting food supply, the annual back-to-school spending surge, and the broader impact of Middle East tensions on energy prices worldwide. Hugo Perea, chief economist at BBVA Research Peru, expects monthly inflation to exceed 1%, up from February’s 0.69% — which had already surprised to the upside on food costs from heavy rains. Annual inflation reached 2.21% in February, breaking a streak of more than a year below the central bank’s 2% midpoint target.
Growth Takes a Hit
Perea estimated that two weeks without normal hydrocarbon production could shave 0.1 to 0.2 percentage points off annual GDP growth, against the government’s 3.2% target for 2026. The sol, one of the region’s most stable currencies, weakened past 3.40 per dollar this week for the first time since October, reflecting both domestic stress and global risk aversion from the Middle East war.
Pipeline operator Transportadora de Gas del Perú (TGP) said repairs could take up to 14 days. The Camisea system has a troubled history: within its first 18 months of operation starting in 2004, the pipeline suffered five major leaks, attributed by an independent audit to poor welding and rushed construction. The current incident — involving both a leak and a visible explosion — is the most severe supply disruption the system has caused.
Room to Absorb
Economists expect the central bank to hold its reference rate at 4.25% at next week’s meeting, judging the shock temporary. Peru’s policy rate is among Latin America’s lowest and sits just above the US federal funds rate — a floor rarely breached by emerging-market central banks. Perea said inflation should return to normal within months and close the year near 2.5%. “Fortunately, these shocks are happening while the economy is strong,” he said. “There’s room to maneuver on both the fiscal and monetary fronts.” The question is whether the pipeline gets fixed before the room runs out.