CHILE – Inflation strikes back in June

According to the INE, monthly CPI in June printed flat (-0.02%), well above the Bloomberg median (-0.2%), asset prices (-0.21%), and our call (-0.27%). Importantly, the print was also above the BCCh's implicit CPI forecast for June (-0.15%). Among the items with notable MoM increases, the following stood out: Bread (4.5%; 0.09 pp. of contribution), Wine (3.9%; 0.04 pp. of contribution) and Food Purchased in Restaurants, Cafés, and Similar (0.6%; 0.03 pp. of contribution). On the downside, the most significant price drops were observed in fuel prices, Gasoline (-2.5%; -0.10 pp. of contribution) and Diesel Fuel (-8.0%; -0.05 pp. of contribution), in line with the recent decreases in local prices. Core CPI (ex-volatiles) rose by 0.2% MoM, also above our forecast (0.0%) and the BCCh’s implicit estimate (-0.06%). Core goods were flat on the month, while Core services increased by 0.3% MoM.

In annual terms, CPI rose to 4.3%, up 0.41 pp. from May. Core CPI (ex-volatiles) registered a 3.4% YoY, rising 0.18 pp. from May, where Core goods presented a 2.0% YoY (up 0.59 pp. from May) and Core services registered a 4.4% (falling -0.13 pp. from May). CPI in the year through June reaches 2.8%. At the margin, headline CPI increased by an annualized 8,7% in the quarter (3.3% in March quarter). Core inflation increased by 3.8% (annualized; 2.4% as of March), pulled up by services.

Our take: The June surprise comes on the back of several lower-than-expected prints in recent months, reflecting the reversion of one-offs in May, also failing to fully incorporate the fuel price declines in the month. Our preliminary forecast for July’s CPI ranges between 0.0-0.1% MoM. Our scenario envisages an above-consensus CPI forecast of 4.1% by the end of the year. Even though activity has remained weak, the June CPI print and ongoing swings in international oil prices, call for caution on the BCCh’s next policy moves. We forecast the BCCh on hold at 4.5% for the rest of the year.