Chile Demand Surged in March as Copper Production Slowed

Chilean retail and supermarket sales surged in March, even as manufacturing slowed, fueling speculation that the central bank will raise its key interest rate toward the end of the year.

Retail sales rose 9.2 percent last month from the previous year and supermarket revenue climbed 10.3 percent, the National Statistics Institute said in a report today. Manufacturing expanded 0.2 percent, compared with the 3 percent median estimate of 13 analysts surveyed by Bloomberg. Mining contracted 0.6 percent as copper output declined.

Five interest rate increases by the central bank last year have failed to slow internal demand and economic growth, which exceeded market forecasts in two of the past three months. Last month’s deceleration in manufacturing is unlikely to deter policy makers from raising borrowing costs toward the year-end, Banco Santander Chile economist Juan Pablo Castro said today.

“Industry isn’t what’s driving the economy today, and nobody would think that because the driver is internal demand,” he said by telephone from Santiago. “March numbers continue to confirm the economic trend we’ve seen recently, as data on demand is particularly strong.”

Chile’s peso declined 0.2 percent to 484.41 per U.S. dollar at 10:25 a.m. Santiago time from April 27.

Thirty of the 60 of traders and investors surveyed by the central bank on April 24 forecast policy makers will raise borrowing costs within six months after a surprise reduction in January. The bank has kept rates unchanged for its past three monthly meetings.

Economic Growth

The Imacec index, which acts as a proxy for gross domestic product in the world’s leading copper producer, expanded 6.1 percent in February from the previous year and 5.5 percent in January. GDP will expand 4 percent to 5 percent in 2012 after surging 6 percent in 2011, according to central bank forecasts.

Chile’s economy probably will start a “moderate” deceleration in the second or third quarter, Scotiabank Chile economist Benjamin Sierra said by phone on April 27.

“We still haven’t started paying the price for last year’s increase in the monetary policy rate, which of course will have to have an impact on growth,” he said.

Chile produced 423,064 metric tons of copper in March, down 2.6 percent from the previous year, the statistics institute said today. Production of wood and oil derivatives declined 7.7 percent and 13.9 percent respectively over the same period as output of paper climbed 1.5 percent.

Unemployment Rate

The jobless rate rose to 6.6 percent in the three months through March from 6.4 percent in February, and compared with 7.3 percent in the year-earlier period, the institute said today in a separate report. The increase was in line with the median estimate of 14 analysts surveyed by Bloomberg.

Unemployment typically increases after summer ends in February, Finance Minister Felipe Larrain told a tax forum in Santiago last week.

“The labor market remains tight,” Alberto Ramos, a Latin America economist at Goldman Sachs Group Inc., said in a note e-mailed to investors today. “The economy is operating at around full employment.”

Inflation dropped to 3.8 percent in March from 4.4 percent in February. Policy makers target 3 percent inflation, plus or minus 1 percentage point over two years.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE