Chile's Inflation Rate Fell in February as Economy Weakens

  • Prices increased 4.7% from the year earlier; 0.3% in the month
  • Inflation has stayed above target for much of past two years

Chile’s inflation rate fell for the first time in three months in February after the economy expanded at the slowest pace in almost six years.

Consumer prices rose 4.7 percent from the year earlier, the National Institute of Statistics said Tuesday in a report on its website, compared with 4.8 percent the month before. The median estimate of 19 analysts surveyed by Bloomberg was 4.6 percent. In the month, prices gained 0.3 percent and core prices advanced 0.4 percent, the agency said.

The pressure on the central bank to raise interest rates further is easing as the economy weakens and the peso strengthens against the dollar. Policy makers have raised the key rate by half a percentage point to 3.5 percent since October as inflation remained above the 2 percent to 4 percent target range for much of the past two years. Still, the slowdown will be gradual, said Andres Abadia, a senior economist at Pantheon Macroeconomics in Newcastle.

"We expect inflation to gradually edge down, constrained by the weakness of the economic recovery, the peso’s modest appreciation in the first half and the lagged effect of the central bank’s tightening policy,” Abadia said. Evidence suggests “the monetary cycle is reaching its end with a another modest increase of 25 basis points.”

Analysts expect policy makers to keep borrowing costs unchanged at 3.5 percent in the next three months, according to a survey published by the central bank on Feb. 24. Just two weeks before, they were forecasting a 25 basis point rate increase over the next quarter.

Economic activity rose 0.3 percent in January from the year earlier, the central bank reported Monday, the slowest pace since an earthquake devastated the center-south of Chile in 2010. Finance Minister Rodrigo Valdes urged the market not to "overreact" to the number and said it was likely to be the weakest of the current economic cycle.

"Evidence points to a gradual pick-up in growth over the next few months," Valdes said in a telephone conference from New York Monday. "Economic growth in February will likely be better than in January."

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