Nearshore Americas

Inflation in Chile Remains Above Target

Source: Bloomberg Business Week

Chilean consumer prices rose 0.1 percent in January from December, leaving the annual inflation rate above the target range for a second straight month, the National Statistics Institute said.

Prices climbed 4.2 percent from a year earlier and monthly core inflation, which excludes fuel and produce, was 0.1 percent, the institute said in a report today. The median estimate of 16 analysts was for prices to rise 0.2 percent in the month.

With annual inflation above the central bank’s 2 percent to 4 percent target, policy makers probably will pause before repeating last month’s surprise quarter-point cut in its benchmark interest rate, economist Cristobal Doberti said by phone. Since the Jan. 12 rate reduction, data show unemployment tumbled and economic growth accelerated in December.

“Given the recent economic activity data we’ve seen locally and abroad together with the increase in salaries, we expect the bank to hold the rate in the next meeting,” Doberti, an economist at Bice Inversiones in Santiago, said today. Rate cuts won’t come until “the economy shows more signs of contagion from abroad than what we’re seeing now.”

The central bank will leave its key interest rate unchanged at 5 percent this month, according to the median forecast of 56 traders and investors surveyed by the bank on Feb. 7. The bank will reduce the rate to 4.75 percent in May and 4.5 percent in August, according to the survey published today.

Transport vs Electricity

Transportation costs climbed 1 percent in January, led by a 2.1 percent gain in motor fuel. The cost of electricity fell 5.1 percent over the same period as new price fixings came into force, the statistics institute said.

The cost of beef, which was one of the drivers of faster- than-forecast price increases in December, fell 2.3 percent as supermarkets found new suppliers. An outbreak of foot-and-mouth disease in Paraguay, which provides 63 percent of Chile’s beef, had restricted supply in previous months.

The current drought in Chile won’t drive up prices of produce or electricity, the ministers of agriculture and public works, Luis Mayol and Laurence Golborne, said today.

“Fruit exporters will be selling more to the domestic market” as they divert sub-standard produce from exports, Mayol told reporters in Santiago. “If anything, it will lead to a drop in prices.”

Rate Swaps

Chile’s one-year interest rate swap, which reflects traders’ views of average borrowing costs, rose 1 basis point, or 0.01 percentage point, to 4.74 percent at 11:54 a.m. in Santiago from yesterday. The swaps market may not react to the slower-than-forecast price increases, according to Alex Pigatto, a trader at Nomura Securities Inc. in New York.

“The figure itself will not be enough to bring relief in the interest-rate swaps and breakeven curve,” he wrote in a note to clients.

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Policy makers last month reduced their benchmark interest rate for the first time in more than two years. Only four of 20 analysts surveyed by Bloomberg had forecast the quarter-point reduction to 5 percent.

Since then, economic reports show that unemployment fell to 6.6 percent in the last three months of 2011 from 7.1 percent the month earlier, while the economy expanded 1.3 percent in December from November, the fastest pace in 17 months. Wages rose 1.2 percent in December from the previous month.

The Chilean peso strengthened 0.3 percent to 477.05 per U.S. dollar at 12:25 p.m. in Santiago. The median forecast of 57 traders and investors in the survey was that the peso would reach 480 in seven days and 485 per dollar in three months.




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