Chile Consumer Prices Unexpectedly Rise as Economy Rebounds

Chilean consumer prices unexpectedly rose in January, leaving the annual inflation rate above the central bank’s target range for the 10th month and further damping speculation of rate cuts.

Prices gained 0.1 percent in the month, the National Statistics Institute said, compared with the median estimate of 18 analysts surveyed by Bloomberg for a decline of 0.3 percent. Annual inflation eased to 4.5 percent from 4.6 percent, compared with the 2 percent to 4 percent target range. Core prices, which exclude fuel and produce, climbed 0.6 percent in the month.

“The central bank is waiting for inflationary risks to dissipate and that is not happening,” said Nathan Pincheira, an economist at Banchile Inversiones in Santiago. “This number is not auspicious for further rate cuts or the convergence of consumer prices towards the bank’s target range.”

The inflation report comes one day after the central bank said the economy expanded in December at the fastest pace since March and the statistics agency reported a 7.2 percent jump in wages. The central bank, which has cut its key interest rate eight times in the past 16 months, has forecast inflation will slow to 2.8 percent this year with a steep slowdown in the first half of the year.

Chile’s peso strengthened 0.4 percent to 621.68 per dollar as of 8:42 a.m. in Santiago, its fifth day of gains.

Underlying Inflation

The underlying inflation rate rose to 5 percent in January, the highest level since April 2009. Fuel costs, which aren’t included in underlying inflation, fell 10.7 percent in the month, knocking 0.34 percentage points off inflation.

While clothing and footwear costs fell 2.8 percent in December from the month before, alcoholic drinks and tobacco climbed 4 percent, partly on higher taxes.

On Jan. 26, central bank board member Joaquin Vial said policy makers felt comfortable with current policy until slower inflation was confirmed.

“Monetary policy is going to depend on what happens in the next few months,” he told Pulso newspaper.

The January inflation numbers make it unlikely for the bank to reduce borrowing costs in the next few months, Pincheira said.

Chile’s jobless rate fell to 6 percent in the three months through December from 6.6 percent in the previous three months. The Imacec, a proxy for gross domestic product, rose 2.9 percent in December from the year earlier, beating analyst estimates for third straight month. Wages leaped 7.2 percent over the same period.

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