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Weak core inflationary pressures at the margin.
2023/11/08 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra



Consumer prices rose by 0.44% from September to October, slightly below the Bloomberg market consensus and our call of 0.5%. Upside pressures in the month stemmed from volatile prices as core inflation (excluding volatiles) was flat from September, reflecting the overall weakness of domestic demand. Food and non-alcoholic beverages (+20bp contribution), alcoholic beverages (+11bps), fuel (+11bps), household gas (+7bps), and tourism packages (+15bps) were relevant upside price drivers in the month. On the contrary, falling air travel prices, apparel and furniture (possibly linked to cyber sale effects which may revert in November) curtailed the CPI variation in the month. The bulk of the surprise relative to our forecast was split between lower-than-expected air travel prices, but a greater tourism package price increase. In annual terms, total inflation fell 10bps to 5.0%, and core inflation reached 6.5% (from 6.6%). Accumulated inflation as of October reached 3.7%. Although activity and labor market data at the margin have been somewhat better than expected, the economic recovery will require greater support from macro policy. We expect the BCCh to continue lowering the policy rate in December by 50bps to 8.5%, but low core inflationary pressures at the margin will renew market calls for a somewhat faster path, once global financial conditions permit, given how contractionary monetary policy remains.  

 

Weak core inflationary pressures at the margin. Annual tradable prices rose 0.5pp to 4.3%, as the food price correction stalled and energy price drag moderated (due to the past effects of CLP weakness and high global oil prices). On the other hand, non-tradable inflation fell 0.9pp to 5.9%, with services down 0.7pp to 5.5% YoY. At the margin, inflation accumulated in the quarter was broadly steady at 3.4% (SA, annualized), but core inflation fell further to 1.7% (SA, annualized; 2.5% in 3Q and 5.5% in 2Q23). 

 

We expect inflation to end the year at 4.1%, with the timing of an expected electricity tariff (between the end of this year and the start of 2024) and the possible reversion of some price sales effects providing additional uncertainty. In turn, the effects of the cumulative depreciation of the CLP over recent months, high oil prices, and rising producer prices all pose threats to the disinflation path going forward.