Macroeconomic Forecast Nicaragua

We are becoming concerned about the short-term inflationary trend in Nicaragua, where central bank data imply the pressures on consumer prices are starting to build significantly. According to central bank data, year-on-year consumer price inflation (CPI) growth reached 3.89% in April, from 0.97% in January. While not alarming by itself, by our calculations this growth rate implies an annualised measure of 11.31% month-on-month 3mma, from 1.88% just three months earlier. With the government's commitment to boosting pay for public sector workers, we see risks that CPI could continue rising despite a cooling of imported commodity prices. For the time we hold to our end-2010 CPI projection of 6.7%, as we suspect a benign external climate to cap year-on-year price growth later in the year, but believe the risks are now weighted to the upside.

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