"Eppur Si Muove"
Economic activity has displayed resilience in the face of the catastrophe in the South and continues to pose a challenge for inflation. Manufactures output has presented robust results since December but is subject to increasing unit labor costs, that is, real wages growing ahead of productivity, as well as the depreciation of the exchange rate.
On the demand side, consumption expansion remains driven by a strong labor market and expansionary fiscal policy, while private investment suffers from high-interest rates and uncertainty. We expect activity to maintain pressure on underlying inflation in the context of an economy operating above potential, while industrial prices reflect both rising production costs and currency depreciation, whose pass-through is facilitated in a heated economy.
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