I'm doing my first trip to South America (Peru) and will be spending most of my time in the Sacred Valley, Cusco and Lake Titicaca areas. Does anyone have a good idea of a small, inexpensive gift that the local people may enjoy? It needs to be something I could easily pack in with my bags.

Is this a good idea (does anyone do this)? I'd like to do something more than just "take" while I'm there.

If you really would "like to do something more than just "take" then tale a look at this web page for suggestions
http://www.livingheartperu.org/lhgetinv/lhdonate

We did some work with them in Hearts Cafe in Ollantaytambo a few years back. They do great work in the mountains with women and children. If you are in Ollantaytambo you could always drop stuff into the cafe. Rather than bring stuff with you, you could always buy stuff in the local markets thus helping the local storekeepers as well.

I haven't been to Peru, but I'd second what Crellston says. If you can donate some of your time, I'm sure people always appreciate it when you spend money at local shops, restaurants and markets.

Great ideas - and I'll even be in Ollantaytambo for 3 days! I'll check out Hearts Cafe for sure...

I found during my trip to Peru in late 2011 that stationery for children to use at school was very welcome - likewise stickers of any type. Easily found in local stationery shops, but often luxury items for locals.

If you are taking any excursions up to higher altitudes, the local people don't necessarily have access to things like warm weather produce (citrus, pepino dulce, hot peppers, etc) or even baked breads. It isn't necessarily advertised on the donor websites (as I think this is for people traveling from overseas). If you are going by van you can bring a bag of bread or oranges, mandarins, etc which travel well. PS this isn't true for cities like Cusco, just the outlying villages where it's a day's walk or weekly visit to the market.