Andean Group - March 2008 (ISSN 1741-4466)

In February inflation hit its highest monthly rate since President Alan Garcí­a took office in 2006. The rate in February was 0.91%, bringing the lagging 12-month rate to 4.82%.

The rise in inflation is taking the gloss off strong economic growth. The February figure means that the inflation rate over the first two months of the year is 1.13%, pretty much identical to the 1.14% recorded in the first two months of 2007. For 2007 as a whole inflation came to 3.93%.

The current level of inflation is double what the government expected and is largely the result of the heavy rains which have led to shortages, and higher prices, of fresh foods. The price of vegetables rose by 11.6% in February powered by a 71% jump in lettuce prices and a 35% risen in pea and cauliflower prices. Edible oil and meat prices also rose sharply. The government is aiming for inflation of between 2.5% and 3.5% in 2008.

Growth: The GDP growth rate in the fourth quarter was the fastest for 12 years, led by construction and manufacturing at 9.1%. Year-on-year growth in the third quarter was 8.9%. Domestic demand, at 12%, rose faster than overall growth suggesting that the economy is overheating. This means that the central bank is likely to increase rates to keep inflation under control. The economy grew by 8.9% in 2007.