Chile Reports Fastest Pace of Inflation Since July

Chilean consumer prices rose faster than analysts estimated in May and at the quickest annual pace since July.

Prices climbed 0.4 percent last month from April and 1.5 percent from a year ago, the National Statistics Institute said today. Economists predicted monthly inflation of 0.3 percent, according to the median of 18 estimates compiled by Bloomberg.

The Chilean central bank may raise its benchmark interest rate for the first time since September 2008 next week as inflation accelerates after the longest streak of deflation since the Great Depression ended last year, economists predict. The earthquake that struck South America’s fifth-largest economy on Feb. 27 may help drive inflation faster than the central bank’s target rate later this year.

A quarter-percentage-point rate rise June 15 “is a done deal,” said Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York. “The question at this stage is whether they do more than that.”

The central bank may be reluctant to increase rates by a half point because of global economic “jitters,” Ramos said.

The earthquake and accompanying tsunami smashed factories, bridges and ports in a swathe of Chile south of Santiago, causing as much as $30 billion in damage and curbing the country’s potential output, even as consumer spending expands.

Chile suffered its deepest recession in a decade last year, opening a gap between its actual gross domestic product and its potential output. The quake damage will help narrow that deficit, which could stimulate faster inflation, central bank Chief Economist Pablo Garcia said in an April interview.

Economic Expansion

The economy expanded 8.2 percent in April from March, the biggest increase since 1996, and 4.6 percent from a year earlier, the central bank said yesterday. It was the quickest annual growth since September 2008 and double the median forecast of 10 economists surveyed by Bloomberg.

“Inflation keeps rising steadily, which has to do with the central bank’s policy of keeping monetary conditions extremely expansionary since the end of last year when they were more concerned about deflation,” said Alfredo Coutino, director for Latin America at Moody’s Inc. “Inflation is still far below the 3 percent target.”

Coutino expects the central bank to hold off on raising rates until July.

The inflation forwards market was yesterday pricing in an annual inflation rate of 1.36 percent in May and a monthly price rise of 0.27 percent, according to Banco Santander SA prices.

Breakeven Inflation

The one-year breakeven inflation rate rose 10 basis points to 3.7 percent today, the highest since April 7, from 3.6 percent yesterday, according to Bloomberg calculations. The breakeven rate tracks the difference between nominal and inflation-linked swap rates to gauge the average pace of price rises over the life of the contracts that traders are pricing in.

The peso weakened 0.7 percent to 549.65 per dollar at 9:59 a.m. New York time from 546.05 yesterday, the eighth straight day it has ceded ground against the dollar.

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