Chilean consumer prices rose 0.2 percent in January, leaving annual inflation in the lower half of the target range, even after the peso depreciated for three months.
The inflation rate was 2.8 percent, the National Institute of Statistics said in a report released in Santiago today. The agency introduced new weightings last month, after inflation reached a 19-month high of 3 percent in December. Prices rose 0.4 percent in December under the new system, compared with the 0.6 percent previously reported. No new annual rate was given for that month.
The central bank cut interest rates in October and November as an investment boom began to ease and economic growth slowed. The rate cuts and the prospect of tighter monetary policy in the U.S. has led the peso to weaken 6.3 percent against the dollar in three months, pushing up import costs. Still, policy makers remain “relatively unconcerned” about inflation, central bank President Rodrigo Vergara said in an interview on Jan. 20.
“Inflation is low again after various significant increases that were above expectations,” said Nathan Pincheira an economist at Banchile Inversiones in Santiago. “A rate cut in February is already incorporated in expectations.”
Gross domestic product rose about 2.7 percent in the fourth quarter, the slowest pace since the first three months of 2010, according to monthly data released yesterday. At the same time, inflation remains within the 2 percent to 4 percent target range.
“There is a probability that we have an expansive monetary policy going forward,” Vergara said last month. “We don’t think it will be massive, that a huge monetary stimulus is needed, but there is a probability that an additional monetary push will be required.”
Central bank board member Enrique Marshall told El Mercurio on Feb. 2 that the depreciation of the peso should be seen as the solution to a less favorable price of copper and higher global interest rates. Chile is the world’s largest copper producer.
Rate cuts won’t result in faster inflation because economic activity and spending are growing less than trend, Marshall said.
Core prices, which exclude fuel and produce, rose 0.2 percent last month, the statistics agency said.
The decline in the peso may lead to a further pick-up in inflation in February, Pincheira said. As a result, the central bank probably will eliminate the easing bias from its statement when it cuts rates this month, signaling a delay to any further reductions, he said.
“The central bank won´t want to add more pressures to the peso given the impact it could have in inflation and financial stability,” Pincheira said.
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