Chilean consumer prices rose less than analysts expected in June, slowing annual inflation for the first time in eight months, as the weakest economic growth in four years eased pressure on costs.
Prices rose 0.1 percent in the month, the National Statistics Institute said today, compared with the 0.2 percent median estimate of 17 analysts surveyed by Bloomberg. The inflation rate eased to 4.3 percent from 4.7 percent the month before.
Core prices, which exclude fuel and produce, climbed 0.1 percent last month, the agency said. The central bank will probably resume rate cuts this month as inflation slows and after the statistics agency yesterday reported growth of 2.3 percent in May, said Felipe Alarcon, chief economist at EuroAmerica in Santiago.
Policy makers have left the key interest rate unchanged at 4 percent at their past three meetings, following four cuts in six months, after inflation quickened more than they expected earlier this year.
“This clearly raises the chances of the central bank cutting rates this month,” Alarcon said. “After the economic activity numbers released yesterday, which disappointed the market and probably the central bank too, if they don’t cut in July, they will cut in August.”
The peso weakened 0.5 percent against the dollar today, the most in emerging markets. The two-year swap rate fell four basis points, or 0.04 percentage point, to 3.61 percent, the lowest in four years as traders priced in a higher likelihood of a central bank rate cut as soon as this month.
Clear Path
“With the negative data from yesterday and today it is now clear that the central bank could justify a 25 basis point cut,” said Patricio Aliaga, head of proprietary trading at Bank of Nova Scotia’s Chilean unit.
“The market is generally expecting inflation well below 3 percent, so the path is clear for the bank to act.” Gross domestic product rose 2.6 percent in the first quarter from the year earlier, down from 2.7 percent in the previous three months and 5 percent in the third quarter.
With growth remaining week in the second quarter, GDP will probably expand 3 percent this year, according to the median estimate of economists surveyed by Bloomberg.
Inflation probably will remain above the 2 percent to 4 percent target range until November, central bank President Rodrigo Vergara said on June 20, while repeating that the pick-up was probably transitory and linked to the depreciation of the peso.
Price-growth will probably begin to converge toward the bank’s 3 percent target in the first half of 2015, Vergara said.
Peso Weakness
Inflation has accelerated from 1.5 percent in October last year, as a weaker peso pushes up import costs.
The peso has declined 5.6 percent against the dollar in the past eight months, the worst performing major emerging market currency tracked by Bloomberg after the Argentine peso.
Pressure on prices is expected to ease as economic growth slows and unemployment rises. The jobless rate climbed to 6.3 percent in the three months through May from 5.7 percent for much of the second half of last year.
Unemployment had fallen from a high of 9.7 percent at the end of 2009. The central bank retained its dovish bias in its June meeting, while saying that interest rates will probably track market expectations in its quarterly monetary policy report released on June 16.
Most analysts expect a further rate reduction to 3.75 percent in the next three months, according to the central bank´s bi-weekly survey of traders released June 25.
bloomberg.com
Prices rose 0.1 percent in the month, the National Statistics Institute said today, compared with the 0.2 percent median estimate of 17 analysts surveyed by Bloomberg. The inflation rate eased to 4.3 percent from 4.7 percent the month before.
Core prices, which exclude fuel and produce, climbed 0.1 percent last month, the agency said. The central bank will probably resume rate cuts this month as inflation slows and after the statistics agency yesterday reported growth of 2.3 percent in May, said Felipe Alarcon, chief economist at EuroAmerica in Santiago.
Policy makers have left the key interest rate unchanged at 4 percent at their past three meetings, following four cuts in six months, after inflation quickened more than they expected earlier this year.
“This clearly raises the chances of the central bank cutting rates this month,” Alarcon said. “After the economic activity numbers released yesterday, which disappointed the market and probably the central bank too, if they don’t cut in July, they will cut in August.”
The peso weakened 0.5 percent against the dollar today, the most in emerging markets. The two-year swap rate fell four basis points, or 0.04 percentage point, to 3.61 percent, the lowest in four years as traders priced in a higher likelihood of a central bank rate cut as soon as this month.
Clear Path
“With the negative data from yesterday and today it is now clear that the central bank could justify a 25 basis point cut,” said Patricio Aliaga, head of proprietary trading at Bank of Nova Scotia’s Chilean unit.
“The market is generally expecting inflation well below 3 percent, so the path is clear for the bank to act.” Gross domestic product rose 2.6 percent in the first quarter from the year earlier, down from 2.7 percent in the previous three months and 5 percent in the third quarter.
With growth remaining week in the second quarter, GDP will probably expand 3 percent this year, according to the median estimate of economists surveyed by Bloomberg.
Inflation probably will remain above the 2 percent to 4 percent target range until November, central bank President Rodrigo Vergara said on June 20, while repeating that the pick-up was probably transitory and linked to the depreciation of the peso.
Price-growth will probably begin to converge toward the bank’s 3 percent target in the first half of 2015, Vergara said.
Peso Weakness
Inflation has accelerated from 1.5 percent in October last year, as a weaker peso pushes up import costs.
The peso has declined 5.6 percent against the dollar in the past eight months, the worst performing major emerging market currency tracked by Bloomberg after the Argentine peso.
Pressure on prices is expected to ease as economic growth slows and unemployment rises. The jobless rate climbed to 6.3 percent in the three months through May from 5.7 percent for much of the second half of last year.
Unemployment had fallen from a high of 9.7 percent at the end of 2009. The central bank retained its dovish bias in its June meeting, while saying that interest rates will probably track market expectations in its quarterly monetary policy report released on June 16.
Most analysts expect a further rate reduction to 3.75 percent in the next three months, according to the central bank´s bi-weekly survey of traders released June 25.
bloomberg.com
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