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Tradable pressures are elevated at the margin.
2024/02/08 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Consumer prices increased 0.7% from December to January, above asset prices (0.35%), and the Bloomberg market consensus and our call of 0.4%. The surprise relative to our call came mainly from higher condominium fees (+6.5% MoM; +9bps), larger payback from the Black Friday sales in the information and communication division  (1.6% MoM; 10bps; linked to cellular phones, computers, TVs etc) and food and beverages. The upside surprise was partially countered by a larger fall in international air travel (-27.9% MoM; -19bps). The January print was the first with the 2023 basket (which saw an increase in the weight of goods, among several other changes). The INE’s spliced series shows the annual inflation rate falling from 3.9% in December to 3.8%. However, annual inflation reached 3.2% using the 2023 reference series, in line with prior studies that the new basket pointed to inflation levels around 60bps lower. While the official non-volatile series still needs to be rebuilt by the BCCh, we estimate that the core measure rose by 0.8% MoM, leading to 4.4% YoY with the reference series (5.1% with the spliced series; 5.4% in December). While the January print surprised to the upside, the new basket reflects lower levels of inflation with headline inflation even closer to the target. With the positive output gap expected to have closed, and anchored inflation expectations, the Board will continue to cut rates at the start of April. We preliminarily expect another 100bps reduction to 6.25%, but will keep an eye on local financial conditions, particularly the CLP dynamics, to see if developments hinder the functioning of local financial market or raise CPI expectations and thus warrant a more cautious adjustment.

Tradable pressures are elevated at the margin. Service prices rose 0.4%, while non-tradable goods were up 0.3%. Energy prices dropped 0.4% MoM. On the other hand, food prices rose 1.0% in January. Consumer prices excluding food and energy prices increased 0.7%, lifting by the goods component (1.3% MoM: services 0.3%). Tradable prices drove headline inflation in the month, rising 0.9% MoM, with recent CLP dynamics likely to translate into further tradable price pressures in coming months. The 2023 reference series shows inflation excluding food and energy prices at 3.0% YoY in January (4.1% in December with the 2018 basket; 3.7% in January using the spliced series), with tradable inflation at 1.6% (2.3% in December; January split series: 2.7%) and non-tradable at 5.5% (6.1% in December; January split series: 5.3%). Taking a step back and reviewing 2023, the reference series show an accumulation of 2.5pp from February to December last year, below the 3.1% from the 2018 basket.  Key differences are present in March, June and July, with the former reflective of the reduced weight to education. 

While the introduction of a new basket tends to be noisy, we believe that despite the upside surprise in January (led by goods), inflation levels are even closer to the 3% target than previously reported and with limited domestic demand pressures, and well-behaved inflation expectations, the central bank will likely stay on track to take the policy rate towards neutral swiftly. In the coming months, the downside annual drag from tradable inflation will moderate, incorporating CLP passthrough, while risks also remain from a prolonged disruption to the global shipping routes. We see a February CPI range of 0.0 – 0.2%, to be released prior to the April 2 monetary policy meeting. Our yearend inflation forecast stands at 2.8%.