Chile’s Inflation Rate Fell to Lowest in Five Months in October

Chile’s inflation rate fell below the target range for the first time in four months in October as traders price in further interest rate cuts.

Inflation slowed to 1.5 percent from 2 percent the month before, the National Institute of Statistics said in a report released in Santiago today, in line with analyst expectations. In the month, prices gained 0.1 percent. Annual inflation is now the lowest since May and the weakest in Latin America.

Policy makers unexpectedly cut the benchmark rate by 25 basis points to 4.75 percent on Oct. 17 for the first time in 21 months citing weaker domestic demand and subdued inflation. Inflation has remained below the mid-point of the 2 percent to 4 percent target range since June 2012. One-year swap rates imply traders expect the key rate to drop as low as 4 percent.

A consumer spending boom may be easing, with retail sales climbing 7 percent in September from the year earlier, compared with 12 percent the month before. As the prospects for slower growth mount, the central bank lowered its growth forecast for 2013 on Sept. 4 to between 4 percent and 4.5 percent from 4 percent to 5 percent citing global conditions.

Core prices, which exclude fuel and produce, rose 0.3 percent last month, the statistics agency said. Food and non-alcoholic drink costs climbed 1.8 percent, while transport declined 1.6 percent and clothing and footwear dropped 0.8 percent.

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