Chilean Prices Grow Slower Than Forecast as Food Costs Slide

Chilean consumer prices rose less than analysts forecast last month as falling food costs offset gains in clothing and transport, taking pressure off policy makers to raise borrowing costs.

Prices gained 0.1 percent, the National Statistics Institute said in a report today, below the 0.3 percent median estimate of 16 analysts polled by Bloomberg. Annual inflation eased to 1.3 percent from 1.6 percent in January, while consumer prices excluding fuel and produce gained 0.1 percent from January.

Chile has the slowest inflation in Latin America, even after economic growth exceeded estimates made by analysts for six straight months. While inflation is likely to accelerate in March, there’s little chance the central bank board will tighten monetary policy at next week’s meeting, said Matias Madrid, chief economist at Banco Penta in Santiago.

“There’s a high probability today’s annual inflation will be the slowest of the year, as rates in March will start moving gradually to 3 percent,” Madrid said by phone. “They will keep the interest rate unchanged as economic data for February becomes key in determining whether rates will rise in the second quarter.”

Analysts polled by the central bank on Feb. 11 forecast inflation will reach the mid-point of the bank’s 2 percent to 4 percent target band within 11 months. Benchmark borrowing costs will remain at today’s 5 percent through the end of this year before rising a quarter-point in 2014, according to the survey.

Food Costs

The price of food and drinks slipped 0.7 percent in February from the previous month, partially offsetting a 0.7 percent gain in clothing and 1.2 percent increase in transport costs, the institute said in today’s report. Beef prices fell 1.9 percent in the month while gasoline and electricity rose 3.4 percent and 2.2 percent respectively, it said.

Two-year breakeven inflation, which is derived from the difference between nominal and inflation-linked yields on swaps, was unchanged from yesterday’s 2.98 percent as of 9:08 a.m. in Santiago. Breakevens have increased 24 basis points, or 0.24 percentage point, since the end of last year.

The pick-up in inflation implied by the breakeven rates may be accompanied by an economic deceleration, with gross domestic product expanding 4.9 percent in 2013 after climbing 5.5 percent in the first three quarters of 2012, analysts polled by the central bank forecast. The central bank is scheduled to publish fourth-quarter GDP data on March 18.

That slowdown has yet to materialize, as the economy expanded 6.7 percent in January from the previous year, the central bank reported this week. It was the fastest growth in three months and the ninth time in a year that analysts polled by Bloomberg have underestimated economic expansion.

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