Chilean traders’ expectations for inflation fell to the lowest level this year as a stronger peso pushed down the local cost of oil, the country’s main import.
The one-year breakeven inflation rate fell 13 basis points, of 0.13 percentage point to 2.57 percent. It was the biggest drop in two months. Two-year breakeven fell seven basis points to 2.61 percent. The forwards market for unidades de fomento, Chile’s inflation-linked currency unit, indicates traders expect prices to rise 2.22 percent this year, compared with 2.34 percent yesterday.
Chile’s central bank lowered its 2012 inflation forecast on June 18 to 2.7 percent from 3.5 percent because of falling oil and food prices. Oil futures declined to an eight-month low today after the U.S. Energy Department reported crude inventories at their highest in 22 years.
“More than anything else, inflation is following oil,” said Felipe Alarcon, an economist at Banco de Credito e Inversiones. “Oil fell to $82 and with the lower exchange rate there’s a double effect.”
Crude oil for July delivery dropped 2.7 percent to $81.75 a barrel today in New York. The 4.2 percent rally in the Chilean currency this month means the price of oil has fallen 9.3 percent in peso terms since the end of May.
Chile’s peso depreciated 0.1 percent to 495.45 per U.S. dollar after earlier falling as much as 0.8 percent. The peso declined 0.6 percent in aftermarket trading to 498.13 per dollar, according to Datatec prices.
Barclays Plc recommended that investors prepare for the Chilean peso to rally against the dollar and euro as copper prices increase on Chinese economic growth. Chile’s economy may expand 5 percent this year, economists including Sebastian Brown wrote in a research note.
International investors in the peso forwards market reduced their short peso position to $10 billion on June 18 from $10.3 billion on June 15, according to central bank data. Local investors, excluding banks and brokers, had a $16.8 billion long peso position, the smallest since May 16.