Itaú BBA - CHILE – Inflation remains low, despite upside surprise in May

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CHILE – Inflation remains low, despite upside surprise in May

junio 7, 2019

As oil price gains unwind, while domestic demand growth is restrained, we expect a gradual inflation rise ahead

Inflation in May came in above market expectations, with the surprise explained by a higher seasonal rise in volatile tourism package prices. The 0.6% CPI increase from April (0.3% one year ago) was 0.1pp above both the market consensus and our forecast. As expected, an increase in electricity tariffs strongly contributed to inflation in the month. The resulting annual variation moved up 0.3pp to a still-low 2.3%. Furthermore core measures stayed low and our diffusion index sits at low levels. With inflationary pressures contained and an output gap that is widening, we expect the board of the central bank to hold the policy rate at 3% at its June monetary meeting (to be held later today). However, amid the deteriorating global context, we expect to see changes to rate guidance in Monday’s Inflation Report, including the conditions that would warrant increasing the monetary stimulus.

Tariff adjustments led to an 11.3% MoM rise of electricity prices, contributing 0.25pp to the headline variation. Meanwhile, tourism packages rose 23.4% MoM (0.18pp contribution). Beyond traditional seasonal factors (winter vacation packages), the effects of CLP weakening, higher energy prices and the upcoming South American soccer tournament in Brazil (affecting travel prices) are reasons behind tourism prices increase. 

Core inflation and output gap sensitive measures remain low. Inflation excluding food and energy prices posted a mild gain (up 0.1pp to 2.0%) compared to the headline variation. The drag from the tradable component has diminished as inflation moved from 1.2% to 1.9%. The measure more sensitive to the output gap (non-tradable inflation) showed a mild decrease (of 0.1pp) to 2.9% (to the lowest since April last year).


As oil price gains earlier in the year unwind, while domestic demand growth is restrained (amid a more complex external scenario), we expect inflation to only gradually edge towards the central bank’s 3% target, ending this year at 2.8% (2.6% in 2018).


Miguel Ricaurte
Vittorio Peretti

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