Chile Inflation Slows to Top of Target in Temporary Respite

  • Inflation eased to 4%, the National Statistics Institute said
  • Analysts expect the central bank to hold rates next week

Chile’s inflation rate dipped to the top of the target range for only the second time in 19 months in October in what the central bank President Rodrigo Vergara has said will be a temporary respite for policy makers.

Consumer prices rose 4 percent from the year earlier, the National Statistics Institute said on its website Friday, down from 4.6 percent the month before and compared with the 3.9 percent median estimate of 16 analysts polled by Bloomberg. Prices climbed 0.4 percent in the month, with the cost of tradable goods rising 0.5 percent as the peso weakened, the agency said.

Vergara said this week that any slowdown in inflation would be temporary as the weaker currency continues to pressure import costs higher. Price-growth would accelerate and remain above the 2 percent to 4 percent target through the middle of next year, he said, repeating a forecast for one or two more interest rate increases over the next 10 months.

"We expect inflation to go back above 4 percent for several months, at least until mid-2016," Vergara said on Nov.3.

Chile raised its benchmark interest rate by a quarter-point to 3.25 percent on Oct. 15 to tame inflation. It was the first rate increase since June 2011.

"The easing of the headline rate is encouraging news, suggesting that the currency pass-through effect to prices is slowing," said Andres Abadia, a senior economist at Pantheon Macroeconomics Ltd. in Newcastle. "We still expect inflation to stay around the upper-band of the target range over coming quarters."

While raising rates, the central bank has vowed to retain monetary stimulus amid economic weakness, saying the key rate won’t reach the neutral level of 4.5 percent to 5 percent any time soon. Policy makers probably will leave the key rate unchanged next week, according to a survey of eight economists by Bloomberg.

Analyst forecasts year-end inflation of 4.6 percent, according to a poll published by the central bank on Oct. 13. Inflation expectations remain anchored at 3 percent for the two years ahead.

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