For more than a year, Peru had been one of Latin America’s quiet inflation success stories. Prices were rising gently within the central bank’s 1% to 3% target range, expectations were anchored, and the policy rate was parked comfortably near neutral. February’s data disrupted that narrative.
The national statistics agency INEI reported that consumer prices rose 0.60% in February, a sharp acceleration from the 0.12% recorded in January. The annual rate climbed to 1.99% nationally. In Lima, where the most closely watched index is calculated, the monthly jump was even steeper at 0.69%, lifting the annual figure to 2.21%, a 15-month high that came in well above the 1.74% median forecast in a Bloomberg survey of eight economists.
What Drove the Spike
Two categories did most of the damage. Food and non-alcoholic beverages rose 1.71% nationally and 2.01% in Lima, driven by a cluster of price shocks across the protein and produce chain. Egg prices surged 13.1% in a single month. Vegetables, legumes, and tubers climbed 3.7%, as did meat prices. Fish and seafood added another 2.2%.
The second driver was a regulated price adjustment. Water tariffs for residential users were raised by an average of 7%, pushing the broader housing, water, electricity, and gas category up 0.68% nationally and 1% in Lima. Unlike food prices, which fluctuate with weather and supply cycles, the water tariff increase represents a structural step up in household costs that will persist in the baseline for the next twelve months.
Where It Hit Hardest
The inflation was not evenly distributed. Among the 26 cities where prices increased, Puno in the southern highlands registered the sharpest rise at 0.93%, followed by Chiclayo in the north at 0.81%. Both are regions where food accounts for a disproportionate share of household spending, meaning the real purchasing power impact was amplified for the families least equipped to absorb it.
Only one category posted a decline. Communications fell 1.21%, driven by lower mobile phone consumption costs. Everything else moved higher, though sectors like health (0.14%), miscellaneous goods (0.23%), and transport (0.27%) remained below the national average.
What It Means for Rates
The central bank has held its benchmark rate at 4.25% for five consecutive meetings, a stance BBVA Research described as reflecting a neutral position with economic activity near its potential. Before the February data, analysts at Scotiabank had flagged March as a possible window for the next 25-basis-point cut. That calculus may now shift.
Still Within Target, But the Direction Matters
Inflation remains within the BCRP’s 1% to 3% band, and policymakers will note that core inflation, which strips out volatile food and energy prices, was running at 2.0% in January, exactly at the midpoint. But the direction of travel matters as much as the level. Annual headline inflation has now accelerated from 1.37% in November to 2.21% in February, a pace that, if sustained, would approach the upper bound of the target range by midyear.
The combination of supply-driven food shocks and administered price adjustments presents the classic central banking dilemma: neither responds well to interest rate changes, but both feed into inflation expectations if left unaddressed. With Peru’s real interest rate recently rising to 2.22%, above the estimated neutral level of 2.0%, the BCRP has some room to wait. Whether it still has the luxury of patience will depend on what March’s numbers look like.