Chile Inflation Rate Rises to Highest This Year on Peso Drop

Updated on

Chile’s inflation rate rose to the highest this year in July as the peso approaches its weakest level in more than a decade.

Prices climbed 0.4 in the month, the National Statistics Institute said on its website Friday, in line with the median estimate of 19 economists polled by Bloomberg. Annual inflation accelerated to 4.6 percent from 4.4 percent the month before.

Central bank President Rodrigo Vergara told La Tercera newspaper over the weekend that interest rate cuts are off the table because of the weakening peso and faster inflation, even as economic growth remains sluggish. The currency has tumbled 11 percent this year, keeping the inflation rate at or above the top end of the target range for the past 16 months.

“The main doubt for the rest of the year is the effect of the exchange rate,” Andres Osorio, an economist at IM Trust Credicorp Capital in Santiago, said in an e-mailed note to clients. “The pass-through from the depreciation to inflation has increased considerably recently.”

Core inflation, which excludes fruits and energy costs, rose 0.1 percent in July, the statistics agency said.

Export Slump

While inflation accelerates, inflation expectations two years ahead have remained anchored around the 3 percent targeted by the central bank. At the same time, economic growth remains weak.

Exports tumbled 17 percent to $5.23 billion in July from the year earlier, while imports slid 12 percent to $5.22 billion, the central bank said Friday. The trade surplus of $11 million was the smallest since January of last year.

Finance Minister Rodrigo Valdes cut the 2015 growth forecast last month to 2.5 percent from 3.6 percent as poor growth figures in March, April and May indicated that eight interest rate cuts in the year through October and a jump in fiscal spending had failed to revive expansion.

The central bank has “room to adopt a wait-and-see attitude until the risks surrounding the economic recovery dissipate, given the well-anchored inflation expectations, the projected decline in headline inflation, and the downside risks to growth,” the International Monetary Fund said it its annual report on Chile released Thursday.

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