Last Thursday, INEC announced that July inflation was 0.73%, the highest of the year and first since the VAT came into effect.
However, the Central Bank reported that this result is consistent with the provisions of the 2019-2020 Macroeconomic Program of January 2019, and its recent review last month.
The inflation projections in these documents incorporated the effect of the introduction of the value added tax, in accordance with the provisions of Law 9635 on Strengthening Public Finances, and place inflation around the average value of the defined target range by the Central Bank, 3% ± 1 percentage point (pp),”
explained the Central in a statement.
On the other hand, VAT affects the level of the Consumer Price Index (CPI), but its impact on inflation (which is the variation rate of the CPI) is merely transitory, and will dissipate in the following years. In particular, the Central Bank estimated that the effect of the introduction of VAT on the CPI would be around 0.7 percentage points in the twelve months after the entry into force of that tax.