Itaú BBA - Evening Edition – Low inflation in Chile

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Evening Edition – Low inflation in Chile

July 8, 2019

Given our outlook of a growth slowdown this year, we do not expect a notable acceleration of inflation.

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Inflation came in above market expectations in June, led by volatile components, while core measures remained restrained. The CPI was flat from May (+0.1% one year ago), above our call of a 0.1% monthly drop. As expected, food prices drove inflation in the month, while falling apparel (end of season) and transportation (end of winter vacation deals) prices countered the gains. Overall, the surprise to our call came mainly from tourism packages that did not revert the notable gains registered in the previous month. As a result, the annual variation was stable at a low 2.3%, and output gap sensitive measures, along with our diffusion index, do not point at accelerating inflationary pressures. Looking ahead, given our outlook of a growth slowdown this year, we do not expect a notable acceleration of inflation. We see inflation gradually edging up to 2.8% by yearend (2.6% in 2018; 3% target). ** Full story here.

External and domestic demand seem to be weakening in 2Q19. The evolvement of Chile’s external accounts are reflecting the global growth slowdown, as exports decline on a widespread scale and shrinking imports highlight the domestic demand weakening. Overall, a USD 317 million trade surplus was registered in June (USD 297 million one year earlier), below our USD 475 million call and the USD 563 million market consensus. As a result, the rolling 12-month trade surplus came in at USD 3.7 billion, versus USD 4.7 billion in 2018, USD 7.4 billion in 2017. Additionally, our seasonally adjusted series shows a USD 3.4 billion (annualized) trade surplus in 2Q19, down from USD 5.2 billion in 1Q19 when copper prices were higher. As copper prices stay low, global demand remains weak and internal demand growth is limited, the current account deficit is seen staying broadly stable and wide at 3.2% of GDP this year. ** Full story here.


Datafolha institute published a poll on president Bolsonaro’s approval rate. The survey shows that 33% of the sample consider his administration as “good” or “excellent” (from 32% in the previous survey, conducted in April), 31% evaluate it as “regular” (from 33%), and 33% classify his administration as “bad” or “horrible” (from 30%).

The BCB released its weekly survey with market participants (Focus). For the 19th consecutive week, the median of GDP growth forecasts for 2019 printed a downward revision (-3 bps, to 0.82%). For 2020 and 2021, expectations remained at 2.20% and 2.50%, respectively. Aside from the GDP change, all other relevant macro variables were stable in this survey. The median of IPCA inflation expectations for 2019, 2020 and 2021 continued at 3.80%, 3.91% and 3.75%, respectively. The year-end Selic rate expectations for 2019, 2020, and 2021 remained at 5.5%, 6.0% and 7.5%, respectively. Finally, the median of exchange rate expectations remained flat at BRL 3.80/USD for 2019 and 2020, and BRL 3.84/USD for 2021.

Tomorrow’s Agenda: According to local news, the Lower House may begin the deliberations on the pension reform tomorrow. Speaker Rodrigo Maia stated to newspapers that, after the deliberations, he expects the first round of voting to be concluded in plenary before the Congressional break (July 18-31). It will be important to monitor how the discussions tomorrow evolve, in order to gauge whether or not this schedule will hold.


Headline inflation picked up in June, partly due to transitory supply shocks. Prices gained 0.27% from May (0.15% one year before), coming in between the market consensus (0.22%) and our 0.32% forecast. Food prices and transportation led price gains in the month, partly pressured by the impacts of the closure of a key road linking the east of the country to the capital. As a result, annual inflation picked-up to 3.43% from 3.31% in May. Looking ahead, as supply shocks fade, inflation is likely to retreat towards the central bank’s 3% target. Controlled inflation expectations and the negative output gap would keep inflationary pressures in check. However, the recent increase in food prices constitutes an upside risk to our 3.2% yearend call. ** Full story here.


Tomorrow’s Agenda: INEGI will publish June’s CPI inflation, which we expect to come in at 0.07% month-over-month (from 0.39% a year ago), pressured by lower energy prices. Assuming our forecast is correct, headline CPI would decelerate to 3.95% year-over-year (from 4.28% in May), crossing below the upper band of the range around central bank’s target.

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