LONDON: Inflation in Chile accelerated in January to 4.8% y/y after moderating temporarily towards the end of 2015. Inflation accelerated in January because of certain changes in government administrative charges. In February, inflation moderated somewhat and is likely to decelerate further in March, according to Societe Generale.
“We expect it to slip further down to 4.3% yoy (0.3% mom) in March, mainly on the back of a likely deceleration in the food category. Core inflation is also expected to moderate slightly to 0.3% mom (0.4% mom previously). We currently forecast 2016 headline inflation at 4.2%”, says Societe Generale.
Meanwhile, the current risk on the upside to the near-term projection relating to considerable pass-through from depreciation of the currency and strong labor market is slowly diminishing. The Central Bank of Chile has also lowered its projections for 2016 inflation recently, stating that the currency is unlikely to continue depreciating at the same pace. Moreover, lack of growth momentum is likely to ultimately weaken the labor market that will help ease wage growth and inflation, according to Societe Generale.
The central bank during its recent meetings noted that lower inflation pressures in the medium-term will stem from the recent moderation of wage and a weaker economic outlook. The central bank also noted its possible effect on services. Hence, BCCh appears to be more worried regarding rising uncertainties globally rather than inflation. This suggests that future rise in interest rate will be restricted, added Societe Generale.
