Economic Indicator Briefing - Chile - Inflation

In October, consumer prices added 0.88% over the previous month, which was down from the 1.07% price rise registered in September. Nevertheless, the reading came in above market expectations, which had anticipated prices increasing 0.60% over the preceding month. The price rise was broad-based, with all the categories composing the index registering higher prices than in September. That said, higher food prices, which added 1.6% over the previous month, were the main driver of the monthly price rise. As a result of the monthly reading, annual headline inflation rebounded from 9.2% in September to 9.9%, after having declined for two consecutive months.

The current rate marks the highest inflation since September 1994. The core inflation index, which excludes volatile categories such as oil, fresh fruits and vegetables, added a more moderate 0.64% over the previous month. Nevertheless, annual core inflation rose from 8.8% in September to 9.3%.

Despite the high inflation, the current financial crisis has prompted the Central Bank to halt the current monetary tightening cycle and may even force monetary authorities to cut interest rates early next year. Monetary authorities argued that although inflation remains high, the current global financial crisis will slow economic growth which, in turn, should curb price pressures next year.

In the same vein, Central Bank President, José de Gregorio, recently stated that future monetary policy moves will largely depend on the developments in the global financial markets. He added that although inflationary pressures were easing amid lower international commodity prices, the weaker currency may offset some of the moderating effects on domestic prices. The Central Bank maintains its medium-term inflation target of 3.0%, with a ±1% tolerance margin.

Forecasts: This indicator is covered in the FocusEconomics Consensus Forecast. For 5-year projections, including quarterly forecasts for the next two years, please visit our Online Store.