Chile Inflation Rises Back Above Target as Interest Rates Gain

  • Prices have been within target range only once in 21 months
  • Bank had warned CPI would stay above 4% in coming months

Chile’s inflation rate rose back above the target range in December as a weaker peso pushes up import costs, prompting the central bank to raise interest rates for the first time in four years.

Consumer prices climbed 4.4 percent from the year earlier, the National Statistics Institute said on its website Friday, compared with the 4.5 percent median estimate of 15 analysts polled by Bloomberg. Prices were unchanged in the month, the institute said.

Inflation has been above or at the top end of the 2 percent to 4 percent target range for 20 of the past 21 months, prompting the central bank to raise its benchmark interest rate by a quarter-point in October and December. Now, pressure may be mounting again. The peso hit a 12-year low yesterday, a month after the central bank forecast inflation would remain above 4 percent for much of 2016.

"The first quarter of the year will see high inflation, with consumer-price growth staying above 4 percent throughout 2016," said Nathan Pincheira, an economist at Banchile Inversiones in Santiago. “The central bank will probably hike again in April or the second quarter if there isn’t a brutal inflation spike that de-anchors market expectations and requires action before.”

Policy makers raised their inflation forecast for this year in December to 3.8 percent from the 3.7 percent estimated in September. Inflation excluding food and fuel will reach 3.7 percent by year-end, faster than the previous 3.5 percent forecast, they said.

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