Chile’s May Inflation Slowed to Upper Limit of Target Range

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Chilean consumer prices rose in line with analyst expectations in May, pushing the inflation rate down to the edge of the target range for the first time in 14 months as economic growth remains sluggish.

Prices climbed 0.2 percent in the month, the National Statistics Institute said Monday, with annual inflation easing to 4 percent from 4.1 percent. Core inflation, which excludes fruits and energy costs, rose 0.1 percent in April.

“It is a relief for the central bank,” BBVA Chile´s macroeconomic research unit said in a note to clients. “We believe it is highly probable inflation will go above 4 percent in June and to converge towards 3 percent in the second half of the year.”

The central bank last week cut its inflation forecast for the year to 3.4 percent from 3.6 percent and said price-growth will vary around 4 percent for some more months, before stabilizing at about 3 percent in 2016. Monetary policy will remain significantly expansive, policy makers said, without giving a timeframe.

The central bank left its key interest rate at 3 percent on May 14 for a seventh consecutive month.

“It is not the base scenario, but further monetary easing is not 100 percent ruled out,” BBVA said in the note.

The Imacec index, a proxy for gross domestic product, rose 1.7 percent in April from the year earlier, the central bank said on its website Friday. The median forecast of 23 economists surveyed by Bloomberg was for growth of 2.3 percent.

Interest-rate swap prices suggest traders expect the central bank to raise rates in December and again in May, according to Bloomberg calculations. The one-year swap was unchanged at 3.15 percent on Friday, June 5.

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