Prices rose 0.8% from the previous month, beating all estimates in a Bloomberg survey, whose median was 0.5%. Annual inflation fell to 12.3%, the National Institute of Statistics (INE) reported on Wednesday.
Inflation in Chile is slowly converging towards the 3% target, from a three-decade high reached last year.
Even so, central bank president Rosanna Costa has rejected investor bets that rates could fall from April, saying in an interview in January that consumer price hikes are “extraordinarily high”. Economic activity has also been stronger than expected in a sign of resilient demand.
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What Bloomberg Economics Says
“Chilean inflation data for January showed a decrease in supply shocks and supports our expectation that price increases will continue to slow in 2023. Headline inflation should continue to fall, but core inflation may not fall as much as the bank anticipated. central. We anticipate that policy makers will wait longer than initially anticipated to start cutting rates.”
— Felipe Hernández, Economist for Latin America
Swap rates soared as traders reacted to higher-than-expected price increases, and the one-year contract rose 23 basis points to 7.58%. The peso appreciated 0.9%, the second largest increase among emerging market currencies analyzed by Bloomberg.
The prices of food and non-alcoholic beverages rose 1% in January compared to the previous month, driven by an increase of 2.4% in bread and cereals and 2.1% in vegetables, reported the INE. The costs of alcoholic beverages and tobacco rose 2.7%, while wine rose 5.7%.
On the other hand, transport prices fell by 0.2%, with a decrease of 2.9% in fuels and lubricants.
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Strengthening of the currency
Consumer demand, fueled by billions of dollars of fiscal stimulus during the pandemic, and rising copper prices due to the relaxation of covid-19 restrictions in China are two of the main factors that the bank Central is monitoring to understand the evolution of inflation, Costa declared last month.
Monetary policymakers have been helped by the peso, which has appreciated 15% against the dollar in the last three months. A stronger currency helps reduce import costs, which is crucial given that Chile buys almost all of its fuel abroad.
“The disinflation trend is consolidating thanks to the lagged effect of high interest rates, slow economic growth, falling input costs, particularly energy prices, and the strong rebound of the peso since late October ”wrote Andrés Abadía, chief economist for Latin America at Pantheon Macroeconomics, in a note.
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Source: Gestion
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