Chilean inflation expectations plunged after Finance Minister Felipe Larrain said fuel prices will drop this week.
Traders in the forwards market for unidades de fomento, Chile’s inflation-linked currency unit, expect prices to increase 1.44 percent in the 12 months through February, less than half the central bank’s target rate. One-year break-even inflation fell 10 basis points, or 0.10 percentage point, to 2.14 percent, the lowest level since July. The measure has fallen 1 percentage point in the past two months.
Chile’s state-owned oil refiner, Empresa Nacional del Petroleo, will announce tomorrow that wholesale gasoline and diesel prices will fall by “double digits,” Larrain told reporters today in Santiago.
Wholesale gasoline prices dropped 1.7 to 2 percent this week, reflecting cheaper international crude prices. Chile imports almost all its oil and gas and motor fuel makes up 3.2 percent of the national statistics institute’s inflation basket.
“For this week, we’re expecting a significant fall in the price of gasoline and also diesel,” Larrain said. “The fall in the price of gasoline will be significant and in double digits, which will be good news for people who have plans to do something over the long weekend.”
Chilean markets are closed on Nov. 1 and Nov. 2 for national holidays. The price of West Texas Intermediate crude oil has fallen 7.5 percent in October to $85.59 a barrel.
The forwards market is pricing in 0.26 percent inflation in October from September and deflation of 0.03 percent in November. Annual inflation will end this year at 1.79 percent, according to traders, down from the 1.89 percent they were predicting on Oct. 25.
“Tomorrow we’re expecting a 25-peso drop in fuel prices that will push inflation down in November,” said Enzo Sepulveda, who trades unidad de fomento forwards at Banco Santander Chile in Santiago.
Two-year break-even inflation fell eight basis points to 2.6 percent.
Chile’s peso rose for the first time in three days as a rally in European stocks spurred demand for emerging-market assets and copper advanced.
The currency appreciated 0.4 percent to 479.66 per U.S. dollar at 4:12 p.m. in Santiago, according to the Electronic Stock Exchange’s Datatec system, which resisters trades between banks.
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