Chile Annual Inflation Quickens to Fastest Pace Since 2009

Chile’s inflation rate rose in October to the highest since April 2009 on increased food, drink and utility prices, cementing expectations the central bank will refrain from cutting its key interest rate next week.

Consumer prices rose 3.7 percent in October from the year earlier and 0.5 percent from the previous month, the National Statistics Institute said in a report handed to reporters in Santiago today. The median estimate of economists surveyed by Bloomberg was for prices to rise 0.3 percent from September and 3.5 percent from October last year.

“Surprise, surprise,” Jorge Selaive, chief economist at Banco de Credito & Inversiones, wrote in a report e-mailed to investors. “Short-term data (activity and inflation) do nothing more than support a hold on the monetary policy rate.”

The report comes a day after the central bank said the economy expanded 5.7 percent in September from last year, exceeding the median forecast of a 5.2 percent gain made by 14 economists surveyed by Bloomberg. Retail sales leaped 9.6 percent in September from last year, the institute said Oct. 28.

As growth remains robust, annual inflation will exceed the central bank forecast of 3.3 percent for December, Selaive said by phone after publishing his report. The inflation forwards market is pricing in 3.47 percent inflation this year.

Food and beverage prices rose 1.5 percent in October from the previous month, followed by a 0.6 percent gain in transport and 0.5 percent increase in recreation services, the institute said. Clothing prices slipped 0.4 percent and communications services declined 0.3 percent, it said.

Inflation Outlook

As of yesterday, the forwards market was pricing in 0.22 percent inflation in October, leaving the annual rate at 3.45 percent. The market expected the rate to fall to 3.31 percent in December and 2.77 percent at the end of next year. Inflation forwards are today pricing in 3.47 percent inflation in December and 2.71 percent at the end of next year.

The six-month peso swap rate rose one basis point, or 0.01 percentage point, to 4.88 percent as of 10:45 a.m. in Santiago. The one-year rate climbed four basis points to 4.71 percent.

Policy makers kept the key interest rate at 5.25 percent in their past four meetings, saying in a statement accompanying their Oct. 13 decision that they would change policy if a global economic slowdown damped Chilean growth and inflation.

Domestic Momentum

Chile’s economy, which expanded 10 percent in the first quarter and 6.8 percent in the second, grew 4.8 percent in the three months through September, according to calculations made by Bloomberg based on central bank data.

Gross domestic product will expand 6.3 percent this year, which would be the fastest pace of growth since 1997, according to the median estimate of nine economists surveyed by Bloomberg.

“Internal demand is showing very moderate signs of deceleration,” Selaive said by phone. “Were it not for external turbulence and corrections to global growth estimates for 2012, an increase in the monetary policy rate could be an option.”

To contact the reporters on this story: Randall Woods in Santiago at rwoods13@bloomberg.net; Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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