- Prices increased at the fastest annual pace in five months
- Core prices rose almost twice as fast as forecast in the month
Chilean inflation accelerated more than analysts expected in January as the peso hit a 13-year low and the government raised stamp duty, keeping pressure on the central bank to continue raising interest rates.
Consumer prices rose 4.8 percent from the year earlier, the National Institute of Statistics said Monday in a report on its website, compared with the 4.6 percent median forecast of 14 analysts surveyed by Bloomberg. In the month, consumer prices gained 0.5 percent and core prices leaped 0.9 percent, almost double the 0.5 percent forecast by analysts.
Inflation has exceeded the central bank’s target range in 19 out of the past 22 months as a decline in the peso pushes up the cost of imports. The pressure on prices has led the central bank to raise interest rates twice since October, the first increases in more than four years, and signaled that there are more to come. Inflation in January was driven by a doubling in stamp duty on financial transactions, excluding mortgages, to 0.8 percent, the central bank said.
“We knew there would be a big rise in January, a one off,” said Miguel Ricaurte, chief economist at Banco Itau Chile. “The central bank is interested in inflation within the target range by year-end and this number doesn’t change that forecast. We think it will end 2016 at 3.5 percent.”
Still, traders adjusted their expectations of inflation up after the data. They are now pricing in the likelihood inflation will average 2.87 percent over the next five years, an increase of four basis points from Friday, based on the gap between yields of fixed-rate and inflation-linked debt known as the break-even rate. Inflation expectations for the next year increased 14 basis points to 3.51 percent.
Two-year interest rate swaps advanced 7 basis points, the most in two months, to 3.92 percent. The 5-year interest rate swap increased 6 basis points to 4.24 percent. The Chilean peso weakened 0.6 percent to 708.89 per dollar.
Inflation is expected to slow later in the year as economic growth remains weak. The central bank targets inflation of 2 percent to 4 percent.
Economic activity rose 1.5 percent in December from the year earlier, the central bank reported Friday, bringing growth for the full year to about 2 percent. Finance Minister Rodrigo Valdes told CNN Chile last week that the government’s forecast for growth this year of 2.75 percent was very high, indicating the authorities will reduce the estimate later in the year.