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Core inflationary pressures are weakening at the margin.
2023/10/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Inflation continued to fall in September, but less swiftly due to non-core price dynamics, while weakness in domestic demand is reflected by limited core inflationary pressures. Inflation rose 0.67% from August to September (0.9% in September last year), somewhat above market expectations (Bloomberg market consensus: 0.6%; asset prices: 0.54%), and our 0.54% call. Core inflation (ex volatiles) rose by a milder 0.2% (1.0% one year ago), below our 0.3% call. Significant inflationary pressures in the month came from food prices (+1.0% MoM; 23bp contribution and led particularly by potatoes, bread, and tomatoes), along with fuels prices (3.1% MoM; 9.7bps) and tourism packages (+7.4%; 9bp contribution), while notable price declines showed up in soft drinks (-3.6% MoM; -4bps) as well as alcoholic beverages (particularly wine: -3.1% MoM; -3bps). Regarding our monthly estimates, the bulk of the surprise can be explained by potatoes and tourism packages, among other volatile items. As a result, the annual CPI print fell 0.2pp to 5.1%, the lowest rate since August 2021 (14.1% cycle peak in August). Core inflation dropped 80bps to 6.6%. The recent rise in global oil prices, and significant CLP depreciation should slow price disinflation in the near term. Even though today’s print was marginally above market expectations, inflation during 3Q23 came in below the central bank’s estimates. The September IPoM showed a headline forecast of 5.8% in the quarter (5.6% effective), and 7.8% for core inflation (7.5% effective). Nevertheless, the consolidation of weak domestic demand will lead the central bank Board to continue cutting rates. With the option of 100bp increasingly unlikely (due to global developments) for the October 26 monetary policy meeting, the alternatives will likely focus between 50bp and 75bp cuts. We hold a 8.0% monetary policy rate call for YE23.


Weaker core inflationary pressures at the margin. Annual tradable prices dropped 0.5pp to 3.8%, as food inflation continued to correct (dropping 1.3pp from August to 7.9%; 24.7% peak in December). Part of the tradable inflation correction was offset by a smaller energy inflation contraction (+1.1pp to -2.3% YoY; +23.9% peak in September last year). Non-tradable inflation was more sticky, up 0.2pp to 6.8%, while services rose 0.6pp to 6.2% YoY.  Excluding the volatile items, core services dropped a 20pp to 7.8%. At the margin, inflation accumulated in the quarter rose to 3.5% (SA, annualized; 2.6% in 2Q23), but core inflation fell to 2.9% (SA, annualized; 5.6% in 2Q23). 


Upside pressure from CLP depreciation and higher global oil prices will lead to a more gradual disinflation path. We expect inflation to end the year somewhat above our 3.9% call and see a slower disinflation path during 1H24 putting upside pressures to our 3.0% yearend estimate. Our preliminary estimate for October CPI is 0.4-0.5%, leading annual inflation to be broadly steady at 5.1%. Possible downside risks stem from the incorporation of cyber sales (held during the first week of October), and some payback from upside volatile item dynamics in September. On Wednesday, the central bank will release the analyst survey, likely to show slower inflation and rate paths ahead.