Itaú BBA - CHILE – Inflation ends 2020 at 3.0% target

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CHILE – Inflation ends 2020 at 3.0% target

January 8, 2021

The strong CLP performance and the re-introduction of mobility restriction measures would contain pressures ahead

Consumer prices surprised to the upside in the final month of last year, rising 0.3% from November (0.1% last year), above the market consensus of 0.2%. The bulk of the surprise to us was due to surging apparel prices. Stimulus measures, including two 10% pension withdrawal initiatives during 2H20 led to a price acceleration of apparel, food and durable goods. Annual headline inflation ticked up from 2.7% in November to 3.0%. Energy prices were a key price driver in the month rising 0.4% from November, while food price gains persist (+0.2% MoM versus -0.5% in 2019). Excluding volatile food and energy prices, core prices increased 0.4% from November (0.1% in 2019), leading to annual variation rising 0.3pp to 2.6%. Nevertheless, service inflation remains historically low reflecting the weakness of the economy. The payout of pensions withdrawals in December, along with renewed government transfers to vulnerable households would likely sustain inflationary pressures in the near-term. However, the strong performance of the CLP and the re-introduction of restriction measures to contain the second coronavirus wave would counter such pressures.

Increased pulls from food (0.8pp up to 7.6% yoy) and goods (+0.6pp to 4.2% yoy) led to tradable inflation rising to 3.8% (3.2% in November). Meanwhile, non-tradable inflation, reflecting service dynamics, edged down 0.2pp to 2.0% (4.1% average in the last decade), consistent with a wide output gap and restricted mobility.

The nature of the inflation rise during the latter half of 2020 can be explained by transitory pressure from liquidity injections, rather than meaningful closing of output gaps. Similar dynamics are likely for this year, so we believe the central bank will remain comfortable signaling a prolonged retention of the significant monetary impulse going forward with rates steady at 0.5%.

Miguel Ricaurte
Vittorio Peretti

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