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Higher CPI to challenge rate cut pace.
2024/03/08 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

CPI rose by 0.6% MoM in February, up from 0.7% in January, taking the annul print up to 4.5% from 3.8% (in its spliced version; the reference series rose 40bps to 3.6%). The monthly rise was significantly above market expectations for the second consecutive month, with the Bloomberg consensus and our call at 0.2%, while market prices were at 0.14%. Eight of the thirteen divisions of the CPI basket rose on a month-on-month basis, four fell, and one was flat. The key upside pressures in the month came from rent, international air travel, online subscriptions, and meat, while some food items fell significantly (potatoes -17%; tomatoes -9%). Core CPI (ex-volatile) increased by 0.6% MoM, from 0.7% in January, bringing its annual measure down from 5% to 4.8%. Cumulative inflation in the year through February rose to 1.3%. The second consecutive large upside inflationary surprise this year, along with the depreciation of the CLP are likely to support a rise in year-end market-based inflation expectations (from a low 2% late last year, to mid-3%).

Stickier inflation. Core services rose by 1% MoM, affected by indexation, rising 7.2% YoY increase, up 20bps from January. Core goods rose by 0.1% MoM, taking the annual print down to 1.8% (2.3% in January). Tradables increased by 0.3% MoM, corresponding to a 1.9% YoY, rising from 1.6% in January, while non-tradables increased by 1% MoM, with another hike in the yearly rate from 5.5% to 5.9%. Separately, energy prices rose by 0.9% MoM, while food prices fell by 0.1% MoM. 

High inflation poses challenges for the pace of the BCCh’s easing cycle. Even though inflation fell faster than expected towards the end of last year, along with the BCCh’s recognition that inflationary pressures from the new CPI basket remain subsided, the second consecutive upside inflation surprise poses challenges for the BCCh to continue with large cuts (100bps), in our view. At the margin, tradables inflation is turning the corner, consistent with our view that the exchange rate depreciation will have an effect in the coming months. We have an upside bias to our 2.8% yearend inflation call. The inflationary surprise also takes place after a string of better-than-expected activity and labor market data, as expectations on the beginning of the Fed’s easing cycle have been delayed further. The BCCh will publish updated National Accounts data on March 18.