Chile Jobless Rate Unexpectedly Falls, Complicating Outlook for Rate Cuts

Chile’s unemployment rate unexpectedly declined in the three months through December, adding to inflationary pressures and complicating the outlook for further interest rate cuts.

The jobless rate dropped to 6.6 percent from 7.1 percent in the month-earlier period as the retail, mining and construction industries expanded, the National Statistics Institute said. The median estimate of 11 economists surveyed by Bloomberg was for the unemployment rate to remain unchanged.

“The labor market is very tight and it should be a cause of concern for the central bank,” said Juan Pablo Castro, an economist at Banco Santander Chile in Santiago. “We would have to see a very negative surprise in February inflation for the bank to have room to keep cutting rates.”

The central bank unexpectedly reduced its benchmark interest rate by a quarter point to 5 percent on Jan. 12, saying a pick-up in inflation in December was likely to be transitory. With retail sales leaping 10.1 percent in December from the year earlier and unemployment at the lowest since before the recession of 2009, that rate cut may prove to be the last for various months.

“We expect the bank to hold in February,” Castro said. “We could have a fairly prolonged pause.”

Six-month interest-rate swaps in pesos rose two basis points, or 0.02 of a percentage point, to 4.67 percent as of 9:59 a.m. in Santiago. The two-year swap rate climbed three basis points to 4.43 percent.

Market Outlook

Chile’s labor market will continue to expand this year, Labor Minister Evelyn Matthei said in a Jan. 26 statement. At the same time, the government says it’s ready to take steps that may include increased fiscal spending to protect jobs if the global economic downturn impacts Chile further.

“There is a shortage of workers in some areas like agriculture,” said Matthei, a former senator who studied economics at the Pontifical Catholic University of Chile. “We’ve seen a lot of women seeking work, with many of them finding it.”

Chile’s economy probably expanded about 4 percent in December from the previous year, matching gains in November and beating October data, Cesar Guzman, deputy director of macroeconomic studies at investment services company Inversiones Security, wrote in a report yesterday.

The sustained economic growth helped push inflation to 4.4 percent in December, the fastest pace since April 2009 and up from 3.9 percent in November.

“Activity continued moderating at the close of last year and may continue to do so for much of this year,” Guzman wrote. “At the same time, the data continued to show evidence of a positive performance from sectors tied to internal demand measured over 12 months.”

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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