Chile Inflation Rate Rises to 22-Month High on Gasoline Cost

Chile’s inflation rate rose more than analysts expected in February, reaching its highest level in 22 months, as a decline in the peso pushed up import costs and rents jumped.

Inflation accelerated to 3.2 percent from 2.8 percent the month before, the National Statistics Institute said today, above the 2.9 percent median estimate of 10 economists surveyed by Bloomberg. The central bank targets inflation of 2 percent to 4 percent. In the month, prices gained 0.5 percent, led by a 2.6 percent jump in gasoline and a 0.9 percent gain in rents.

The inflation numbers bring into question the rate cut expected by many analysts at the next monetary policy committee meeting on March 13, said Hermann Gonzalez, principal economist at Banco Bilbao Vizcaya Argentaria in Santiago. Policy makers cut the key rate for the third time in five months on Feb. 18, and with economic growth reaching a four-year low in January, analysts expect further reductions this year.

“Data are going in the opposite direction from monetary policy decisions,” Gonzalez said. “There is still space for a rate cut next week, though the decision will be hard and we don’t expect more reductions or the rate to fall under 4 percent this year.”

Slowing Down

The key rate is currently 4.25 percent, compared with 4 percent in Peru, 3.25 percent in Mexico and 3.5 percent in Colombia. Inflation is lowest in Colombia, at 2.3 percent, while Mexico has 4.48 percent and Peru 3.78 percent.

While inflation is picking up, growth is slowing. Chile’s Imacec index, a proxy for gross domestic product, rose 1.4 percent in January from the year earlier, the slowest pace in four years. Finance Minister Felipe Larrain blamed part of the slowdown on a port strike that held up exports.

As growth slows and the U.S. tightens monetary policy, the peso has weakened 9.3 percent against the dollar in the past six months, the worst performance in emerging markets after the Argentine peso.

The weaker peso has led inflation to more than double from 1.5 percent in October.

Still, policy makers said in the minutes of their last meeting that the weaker peso had had little impact on inflation expectations, which remained around the target level.

“The central bank is facing an economy that is slowing down and there is a dovish bias, but on the other hand they have very surprising inflation numbers,” Gonzalez said. “The inflation surprise in previous months is now being reflected in prices indexed to inflation.”

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