Chilean inflation expectations climbed to a four-month high on bets higher commodity costs would push up prices.
The one-year breakeven rate rose 16 basis points to 3.10 percent, climbing above 3 percent for the first time since May. The rate, a measure of wagers on average price increases implied by the gap between inflation-linked and fixed swap rates, has increased 136 basis points, or 1.36 percentage point, in a month.
BNP Paribas on July 24 recommended betting breakeven inflation would rise because of higher commodity prices. The Bloomberg Crops Three-Month Price index has soared 32 percent since mid-June while the price of West Texas Intermediate crude has risen 20 percent since June 28. Chile relies on imports for almost all its oil and gas needs.
“It’s commodity inflation in a country with a tight labor market,” said Diego Donadio, a strategist at BNP Paribas SA in Sao Paulo. “The Chilean economy is the most open in Latin America and the most susceptible to the impact of commodity prices on local inflation. Food and energy commodities were rising faster than the Chilean peso and the level of commodity prices in Chilean peso terms was not being properly priced in.”
Chile’s central bank will leave its benchmark rate unchanged at 5 percent this week, according to all 17 economists surveyed by Bloomberg.
Prices in the forwards market for unidades de fomento, Chile’s inflation-linked accounting unit, show that traders expect prices to rise 2.11 percent this year, up from 1.98 percent yesterday. Traders expected 1.53 percent inflation as recently as Aug. 1, before the National Statistics Institute reported prices were unchanged in July from June, surprising economists and traders who had expected them to fall.
The peso weakened 0.2 percent to 482.93 per U.S. dollar. The currency has depreciated 1.7 percent in three sessions.
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