The pressure on the general price level will continue in April, and forecasts indicate that the indicator will be adjusting to 3%, associated with the effects of the increase in refined productsaccording to estimates released by the Bank of Guatemala (Banguat).
The indicator would go from 2.50% in March to 3% in April and would be at 3.75% in December 2026. By 2027, it would be at 4%.
The estimate would be consistent with the year-end perspective, but the result would be higher than the historical average for April, which is 0.60%, explained Johny Gramajo Marroquín, economic manager of the central bank, after the presentation of the decision to maintain the leading monetary policy interest rate at 3.50% last Wednesday.
He clarified that This “central projection scenario” would have an increase compared to the 2.50% inflation rate in March and would not exceed 3%.
Fuel support would reduce inflationary pressure
With the validity of the subsidy of Q8 for a gallon of diesel for a period of 90 days and Q5 for gasoline, the authorities also provided a perspective of the possible impact on inflation in May, June and July, as well as on the price index.
It was explained that, with the evidence observed in 2022—when a similar support program was granted to consumers—, there was a favorable effect on inflation and, consequently, with the subsidy this decreases in the months in which state support is in force.
“As the subsidy in Guatemala began on May 1, we observed that we could have a favorable effect in May, June and July, taking the three months into consideration. What we would observe is that prices return to the level before the subsidy once it ends,” added Gramajo Marroquín.
He emphasized that The validity of the subsidy affects the inflation of the particular month and has a favorable influence on inflation expectationsbecause it generates additional confidence that prices can remain relatively stable, even when the international crisis may last a few months.
The subsidy will last three months and, to finance it, Q2 billion was allocated.
Stable rating supports economic fundamentals
With the country risk ratings and the result presented by the Moody’s agency of maintaining the grade at Ba1, with a stable outlook, the monetary authorities explained that there is strength in the macroeconomic fundamentals and economic resilience based on disciplined and prudent monetary and fiscal policies.
They also pointed out the existence of a resilient private sector, which will allow this to be the fourth consecutive year in which there will be economic growth above potential, which is 3.5%.
Both the forecast of the central bank and that of other rating agencies demonstrate that resilienceand among the near risks is that the international geopolitical conflict intensifies; However, the expected scenario is that it will have a shorter duration.
The authorities explained that the International Monetary Fund (IMF) has a growth estimate of 3.9%, close to the 4% of the Banguat. Resilience is taken into account, just like the 4% it projects the Economic Commission for Latin America (ECLAC).
With the evidence observed in 2022—when a similar support program was granted to consumers—there was a favorable effect on inflation and, consequently, with the subsidy it decreases in the months in which state support is in force.
“Guatemala begins this international crisis with favorable conditions compared to other countries, with low inflation and economic growth above potential. Other Latin American countries are facing this crisis with inflation above the goal and with economic growth below potential,” explained Álvaro González Ricci, president, and José Alfredo Blanco Valdés, vice president of the JM.
The IMF projects that, for some countries—not in the case of Guatemala—a stagflation scenario would be occurring, that is, low economic growth and high inflation.