Peru accumulated 27 consecutive years of single-digit inflation, the longest period of monetary stability

Peru reached 27 consecutive years with a single-digit inflation rate, the first time in which such an extensive period of time of monetary stability has been achieved.

In February 1997, annualized inflation reached the rate of 9.4 percent, leaving behind a long period in which prices increased at annual rates of two, three and even four digits during hyperinflation.

For example, between August 1987 and August 1990, the accumulated inflation rate was 3.5 million percent; while, in the last two decades, average annual inflation has decreased to around 3 percent.

This improvement was achieved due to an important transformation in monetary policy. The reform of the early 1990s gave the Central Reserve Bank of Peru (BCRP) constitutional autonomy within its Organic Law, which made it focus its objective on monetary stability.

With the new millennium, monetary policy underwent a modernization that puts it on par with the main central banks in the world. In 2002, it implemented the Explicit Inflation Targeting Scheme (MEI), setting since 2007 a target range between 1 and 3 percent, which allows anchoring the inflationary expectations of economic agents and reducing dollarization.

Although inflation has sometimes exceeded the target range due to supply shocks, such as increased prices of food, fuel or exchange rate depreciation, the Central Bank has implemented preventive measures to prevent these temporary factors from being reflected. in inflationary expectations, which have been located 77 percent of the time within the target range in the last 22 years.

In addition, the dollarization of credit – one of the vulnerabilities of the Peruvian economy – was significantly reduced from more than 80 percent at the beginning of 2000 to 23 percent in 2023.

Finally, since the implementation of the MEI, Peru’s average annual inflation rate has been 3.1 percent, the lowest among the main Latin American countries, as well as among those that follow the same scheme in the region.