CHILE – Inflation reaches 4.8% in August as the economy reopens

Under pressure global supply-chains, and expanding domestic consumption will keep inflation elevated

Andrés Pérez & Vittorio Peretti


Consumer prices increased 0.4% from July to August, above the Bloomberg market consensus of 0.3%, while in line with our call. The monthly variation was 0.22pp higher than in August last year, taking the annual variation to 4.8%. The key drivers in the month came from the housing and basic services division (+0.9% MoM; +13bp contribution) and the restaurants and hotel division (+1.8% MoM; +12bps). Products that lifted the former were gas (+7bps) and water (+3bps), while the latter was pulled up by dining (+11bps) as the swift economic reopening supports the recovery of the service sector. Partly containing the upside pressures was the 0.8% (-4bps) fall in the alcoholic beverage and tobacco division, dragged by falling wine prices. Excluding food and fuels, consumer prices rose 0.4% from July (+0.2pp versus last year), but inflation was in line with last year’s variation when excluding volatile items (+0.2% MoM). On an annual basis, inflation excluding food and energy, as well as the breakdown excluding volatile items sit at 3.8%, a percentage point below the headline print. The Central Bank’s updated inflation trajectory (5.7% by year-end) implies a significant price acceleration over the remaining four months of the year, which in our view may not be fully observed. Nevertheless, the presence of significant liquidity in the economy means the Central Bank is unlikely to reduce the 75-bp rate increase pace for now.

While annual food inflation remained stable in August, energy inflation continued to rise and the service price normalization continued. Food inflation came in at 4.9% YoY, while energy inflation rose 2.2pp from July to 14.7% YoY, despite fuel prices falling 0.2% MoM as the authorities implemented measures to stabilize prices. Overall, tradable inflation was steady at 5.9%, lifted by goods inflation of 6.2% (+0.2% MoM) as expanded fiscal transfers and pension liquidity uphold consumption. Service inflation (+0.5% MoM) is on the rise as the economic reopening consolidates, reaching 3.3% YoY in August (+0.5pp from July); service inflation is gradually approaching the 4% average of the past 10 years. The diminished drag from non-tradables in our diffusion index is also in line with the economic recovery underway.

Inflation is likely to end the year near 5.0% as global supply-chains remain under pressure, and domestic consumption continues to expand swiftly, in line with favorable health conditions. Our preliminary CPI estimate for the month of September is 0.7%, lifted by food, beverages and transportation given Chile’s Independence celebrations, while the reopened economy would keep pressure on recreational prices. The Central Bank is expected to implement another 75bp hike in October. Separately, the Ministry of Finance is likely to continue to adjust parameters of the fuel stabilization mechanism.  

Andrés Pérez M.
Vittorio Peretti