Pandemic and cost inflation in Peru

Abstract

This article proposes to analyze the two most urgent problems in Peru today: the pandemic and cost-push inflation. A first conclusion is to recognize that the Covid-19 pandemic has not ended, neither globally nor in Peru. Experts predict that the third wave will arrive in Peru with the new Delta variant in late 2021. It is crucial to contain contagions without affecting reactivation of the economy. The methodology used is the input-output price model. In relation to exchange-rate cost-impacts, the conclusion is that the expected impact of a devaluation of the new sol is estimated as an impact on Consumer Price Index. The impacts are in the range of 7% to 22% or to 36%, depending on the degree of the assumed devaluation being low, intermediate, or extreme. A third conclusion of the analysis relates to increases in the prices of strategic commodities. As an example, the 92% increase in the world price of crude oil has an aggregate effect equal to 6.2% increase in the CPI of the Peruvian economy, after all forward linkages of crude oil, on gasoline and other fuels are reflected. Note that other international commodity prices have also increased in world markets -such as corn, soybeans, and grains- although they are not included in this analysis.