Chile Inflation Slows as the Peso Gains, Unemployment Rises

  • Inflation rate fell to 4.2% in April from 4.5% month before
  • Peso rally this year has eased pressure on import costs

Chile’s inflation rate fell for the third consecutive month in April after the peso rallied against the dollar and the economy entered its third year of sluggish growth.

Prices rose 4.2 percent from the year earlier, compared with 4.5 percent the month before, the statistics institute reported, in line with the the median estimate of 16 analysts surveyed by Bloomberg. In the month, prices rose 0.3 percent.

Inflation is slowing after the peso rallied 5.8 percent against the dollar in the past three months, cutting import costs, and the unemployment rate began to tick higher. Slower inflation eases pressure on the central bank to raise interest rates further to bring price-growth back within the target range of 2 percent to 4 percent, said Antonio Moncado, an economist at Banco de Credito & Inversiones. Inflation has exceeded that range for most of the past two years.

“During the last few months we saw delayed inflation from 2015 influence prices, but that effect finished this month,” Moncado said by phone from Santiago. “Inflation will be lower from now on, around 0.2 or 0.3 percent a month.”

The central bank will probably change its monetary policy bias to neutral in the next months and won’t raise rates until the first quarter of 2017, Moncado said.

Citigroup strategists have gone as far as saying the next move in interest rates will be down, according to a note sent to investors late last month. Their forecast differed from economists at the same bank who expected rates to remain on hold this year and rise in 2017.

Pressure on inflation has eased as the economy slows. Unemployment rose more than expected to 6.3 percent in the first quarter from 5.9 percent in the month-earlier period, the statistics agency reported last week. A separate study by Universidad de Chile showed an even steeper increase, with the jobless rate in the Santiago Metropolitan Region jumping 2.6 percentage points to 9.4 percent in March from three months earlier.

As the jobless rate rises, nominal wage growth was unchanged at 5.4 percent in March, the second-lowest level in more than two years.

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