Dec. 4 (Bloomberg) -- Chile had its first month of deflation in November since February 2007 as fuel costs plunged.

The country’s consumer prices fell 0.1 percent last month, compared to a 0.9 percent rise in October, the National Statistics Institute said in a report released in Santiago today. Prices fell less than the median estimate of a 0.3 percent decline forecast by 19 economists in a Bloomberg survey.

Central bank President Jose De Gregorio yesterday said policy makers may begin to cut interest rates in coming months as slowing global economic growth helps tame domestic inflation. The less-than-forecast price drop may fail to persuade policy makers to cut lending rates at its next meeting Dec. 11, according to Julio Espinoza, an economist at Banco Bice SA in Santiago.

“This could mean the bank delays its rate cut another month,” Espinoza said. The central bank has kept the benchmark rate at decade-high at its last two meetings after four consecutive half-point increases.

The bank has sought to rein in inflation since the start of last year. Rising international commodity prices pushed up the cost of fuel and power in Chile, which imports virtually all of its oil, and the worst drought in 50 years dried the dams that provide the country with its cheapest electricity.

Fuel and transport costs are now falling after international oil prices plummeted 68 percent from their July 3 peak.

Policy Calculations

Last month, the central bank, which had expected 2009 inflation of 5.9 percent and growth of up to 4.5 percent, revised its forecasts to show inflation slowing to 4.0 percent next year, aided by growth of between 2 percent and 3 percent.

“The international crisis is doing, perhaps even more than expected, what a few months ago we though monetary policy would do,” De Gregorio said yesterday. “That’s why we haven’t raised the rate as we expected to in September and, in the most likely scenario, of reducing inflationary pressures, monetary policy would add a stimulus to the economy in coming months.”

The bank may cut the benchmark from a current 8.25 percent in the first quarter of 2009, said Cristian Gardeweg, an economist at Celfin SA in Santiago. Rodrigo Valdes, chief economist at Barclays Capital in New York, also told clients in a research note that the bank will probably wait before cutting rates.

Annual inflation in November slowed to 8.9 percent, down from 9.9 percent in October, the fastest in 14 years. Leading prices down last month, unleaded gasoline fell 15 percent, and liquid gas, used for heating, fell 6.2 percent, the institute said.

Confirmation

The price report was “negative in the numbers and positive for the country,” Finance Minster Andres Velasco said today at a conference in Santiago. “It’s a welcome event that confirms the estimates both of the government and private analysts.”

Core inflation, which excludes fuel, fresh fruit and vegetables, rose 0.6 percent, while the annual pace accelerated to 9.5 percent, the fastest since the statistics institute began the data series in 1998. Phone bills rose 3.5 percent last month.

The central bank expects underlying inflation to end the year at 9.4 percent, it said on Nov. 14.

“There are mixed signals,” Celfin’s Gardeweg said. “Inflation is going to fall fast, but we expect a cut in the first quarter of next year when underlying inflation starts showing signs of slowing.”

The peso gained for first day in four, rising 0.4 percent to 672.27 per dollar from 674.82 at 8:45 a.m. New York time.

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

Last Updated: December 4, 2008 11:28 EST