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Chilean Inflation Expectations Climb After January CPI Surprise

Chilean traders’ inflation estimates jumped after a government report showed consumer prices rose more than expected last month.

The one-year break-even inflation rate, a measure of swaps traders’ expectations for price increases, rose 23 basis points to 3.07 percent at 1:50 p.m. in Santiago. The peso closed little changed at 472.34 per dollar for a 0.2 percent decline in the week. The currency is the second-best performer in Latin America this year, with a 1.4 percent gain.

Consumer prices in the world’s top producer of copper rose 0.2 percent in January, pushing up the annual inflation rate to 1.6 percent from 1.5 percent at the end of last year. While that annual rate is still below the central bank’s 2 percent to 4 percent target range, it’s above traders’ estimates for a 1.5 percent reading. The Standard & Poor’s GSCI gauge of 24 commodities has rallied 4.9 percent this year, reaching a five-month high today.

“We’re importing more inflation because of the positive start to the year for commodities, and it’s not being offset by an appreciation of the peso,” said Sebastian Ide, head of rates trading at Banco de Chile in Santiago. “This greater inflation won’t be reflected in the monetary policy rate and that means the curve should steepen.”

Chile ended 2012 with the slowest inflation among major Latin American countries and the fastest economic growth behind Peru, according to analysts polled by Bloomberg. A reduction in tax on loans had less impact on prices in January than expected, economists at IM Trust SA wrote today in a note to clients.

Traders in the forwards market for unidades de fomento, Chile’s index-linked accounting unit, were yesterday pricing in 2.82 percent at the end of the year. Today they priced in 3.07 percent annual inflation in December.

The peso has held in a range between 471 and 474 per dollar since the end of January as concern that the central bank or government would act to slow its appreciation stops it pushing through 470 per dollar. Without the threat of intervention the peso would have advanced to around 460 per dollar, Ide said.

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