Chile inflation slows to 8-month low in positive surprise

6:03 pm Tuesday, November 08th, 2022

By Fabian Cambero

SANTIAGO (Reuters) – Chile’s inflation in October slowed to its lowest level in eight months, official data showed on Tuesday, a positive surprise likely to reinforce the central bank’s take that its aggressive monetary tightening cycle has come to an end.

Consumer prices in the Andean nation rose 0.5% in October, government statistics agency INE said, slowing down from the 0.9% reported in the previous month and below an expected 0.91% in a Reuters poll of economists.

The lowest monthly figure since February took Chile’s 12-month rate of consumer price increases to 12.8%, still far above the central bank’s target range of 2% to 4% but also below the 13.7% seen in September.

The data comes after Chile’s central bank signaled last month that no more interest rate hikes were expected ahead, but that it would keep rates at the current level for as long as needed to ensure inflation would converge to target.

Chile, the world’s largest copper producer, went through an aggressive monetary tightening cycle to bring down high inflation that followed its economic recovery from the COVID-19 pandemic, including a 50 basis-point hike last month to 11.25%.

Chile: inflation slows https://graphics.reuters.com/CHILE-ECONOMY/xmpjkgmkyvr/chart.png

According to INE, inflation last month was boosted mainly by higher food and non-alcoholic beverage prices, as well as transportation costs. Eight of the twelve groups surveyed posted higher prices in the period, the agency said.

“This is a good report, with the headline inflation rate showing clear evidence of a downtrend,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, adding that it comes as a relief for the local central bank.

Abadia said inflation likely will continue to fall over the first half of next year due to the effect of tight financial conditions, but noted rates are expected to be maintained at their current level for the foreseeable future.

Scotiabank’s Chile senior economist Anibal Alarcon, on the other hand, said he already forecasts an aggressive rate cut of between 100 and 200 basis points in January 2023 after October’s “true disinflationary surprise”.

“We expect the market to align with our view very quickly with significant falls in nominal rates,” Alarcon added.

(Reporting by Fabian Andres Cambero and Gabriel Araujo; Editing by Steven Grattan and Chizu Nomiyama)