Chilean Inflation Expected to be Lower Than 2011

Source: Reuters

Chile’s annual inflation this year will likely be substantially lower than in 2011, when it shot up above the central bank’s tolerance range to reach 4.4 percent, Finance Minister Felipe Larrain said on Thursday.

“We’re confident that this year inflation will be substantially lower than last year’s, and we’ve already had a good start with January inflation,” Larrain told reporters.

Chilean inflation slowed in January, coming in slightly below market expectations, with the consumer price index rising 0.1 percent, following December’s shock 0.6 percent increase.

Reduced inflation could give the central bank room to reduce its key interest rate further after it held rates steady at 5.0 percent in February following a surprise 25 basis point cut in January. However, strong local economic activity and robust domestic demand will likely prompt the bank to again hold rates pat in March, a recent poll showed.

The monetary authority is seen keeping its key lending rate steady again in March and then cutting to 4.75 percent within three months, according to the median forecast in the bank’s fortnightly poll of traders released on Wednesday.

The central bank, in its most recent Quarterly Monetary Policy Report in December, forecast 2012 inflation at 2.7 percent. The consumer price index is seen rising 3.2 percent over the next 12 months, according to the bank’s fortnightly poll of traders.

The fallout from the euro zone’s debt woes hasn’t slowed economic activity as sharply as previously feared, Larrain said earlier this month, but said on Thursday it could lessen inflation in Chile.

“We’re a very integrated economy… We expect the global economic slowdown will help (ease price pressures),” Larrain said of the world’s top copper producer.

But rising international crude oil prices could keep pressure on Chilean consumer prices, analysts have said, as the Andean nation imports nearly all the fuel it consumes.

“We’re going to be monitoring rising oil prices, which could impact local inflation and make it more unlikely that the central bank will further reduce rates,” said Sergio Tricio, head of studies with Forex Chile.

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