Chile’s Inflation Moderation Stays Below Expectations Amid Peso Weakness

Consumer prices rose 5.1% in September from a year prior, just above the 5% median estimate of analysts in a Bloomberg survey

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By Matthew Malinowski
October 06, 2023 | 08:37 AM

Bloomberg — Chile’s annual inflation slowed slightly less than expected last month as the peso continues to tumble, stoking concerns of renewed price pressures as the central bank cuts its benchmark interest rate.

Consumer prices rose 5.1% in September from a year prior, just above the 5% median estimate of analysts in a Bloomberg survey. Monthly inflation stood at 0.7%, the national statistics institute reported on Friday.

A closely-watched price gauge that excludes volatile items increased 6.6% in 12 months and rose 0.2% from August.

Chilean central bankers led by Rosanna Costa are relaxing monetary policy as inflation slows toward the 3% target while domestic activity turns increasingly fragile. The Imacec, a monthly economic activity indicator, unexpectedly contracted in August, raising prospects of a recession. On the other hand, the peso has continued to weaken, making imports more expensive.

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“Overall, disinflation continues in Chile,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a research note. At the same time, the recent peso selloff “will limit policymakers’ room to maneuver next year.”

Abadia sees annual inflation easing to 4.2% at the end of 2023 and then 3.5% in the first quarter of next year.

Price Drivers

In September, food and non-alcoholic beverages rose 1% as floods led to a 37.7% increase in the price of potatoes, while bread increased 1.6%, according to the statistics institute. Transportation prices gained 1.2% as gasoline jumped 3.1%.


On the other hand, alcoholic beverages declined 0.9% while health care ticked down 0.3% during the month.

Top economic authorities including Costa and Finance Minister Mario Marcel see annual inflation near 4% in December. Still, Costa has warned that part of the positive surprise from August’s price-growth slowdown may be reversed due to factors including exchange rate fluctuations.

Indeed, the currency hit its latest year-to-date low on Oct. 4 on a range of factors including speculation of more rate hikes in the US, growth concerns surrounding both the local economy and top trading partner China, as well as the Chilean central bank’s own easing cycle.

“The impact from the recent depreciation will be felt more strongly in the final months of the year,” Jorge Selaive, chief economist at Scotiabank Chile, posted on X, the platform formally known as Twitter.

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Policymakers lowered borrowing costs by 75 basis points to 9.5% on Sept. 5 following a full percentage-point reduction in July. Economists surveyed by the central bank see rates falling to 5% in about a year’s time.

Meanwhile, Chile’s government cut its forecast for gross domestic product growth this year to 0% though it kept its estimate for a 2.5% expansion in 2024, according to its Public Finances Report published on Tuesday.

--With assistance from Giovanna Serafim and Rafael Gayol.


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