Chile CPI Slows More Than Forecast After Economy Weakened

  • Inflation has been above target for most of the past two years
  • Central bank held rates unchanged in March for the third month

Chile’s inflation rate fell more than forecast in March after the peso rallied against the dollar and economic growth remained weak.

Prices rose 4.5 percent from the year earlier, the National Institute of Statistics said Friday in a report on its website, compared with 4.7 percent the month before. The median estimate of 13 analysts surveyed by Bloomberg was 4.6 percent. In the month, prices gained 0.4 percent, the agency said. 

Inflation has eased for two months after the economy grew at the second-slowest pace in six years in January and the peso rallied as much as 5.8 percent against the dollar this year, damping import prices. The decline in inflationary pressures led policy makers to leave interest rates unchanged for a third consecutive month in March after two increases toward the end of last year. The bank has indicated it will raise rates two times over the next year-and-a-half to two years.

"These numbers leave the door open for the central bank to postpone raising interest rates," Banchile Inversiones economist Nathan Pincheira said. "If this becomes a trend, the central bank could moderate its tightening bias in its next statements."

The lower than forecast number spurred a fall in inflation expectations. The two-year breakeven, a measure of the price increases being discounted by the swaps market, fell 10 basis points to 2.9 percent, while the one-year lost 17 basis points to 2.95 percent, their lowest level since October.

The central bank’s latest monetary policy report and the March minutes suggest that some policy makers are considering the possibility of not raising interest rates this year, Pincheira said.

Since then, the statistics agency has reported that wages fell 0.2 percent in February from the month earlier, the joint-biggest decline in six years. Annual wage growth has slowed in eight of the past 11 months.

Weaker growth has eased pressure on the labor market. Central bankers cut their 2016 growth forecast to between 1.25 percent and 2.25 percent last month from the previous estimate of 2 percent to 3 percent. The Imacec index, a proxy for gross domestic product, grew 0.5 percent in January from the year earlier, before rebounding to 2.8 percent in February.

Slower inflation is “raising the likelihood the central bank may defer the envisioned additional normalization of monetary policy for a while longer,” said Tiago Severo, an analyst at Goldman Sachs Group Inc., according to an e-mailed note to investors.

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