Itaú BBA - Lower-than-expected inflation in Chile

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Lower-than-expected inflation in Chile

Janeiro 9, 2020

A sharper price drop in the food division and a decline in tourism packages were the key factors behind the surprise

Talk of the Day


Consumer prices increased 0.1% in December, below market consensus and our forecast of 0.2%. A sharper price drop in the food division and a decline in tourism packages (despite the recent CLP depreciation) were the key factors behind the surprise, while rising energy prices and transportation services lifted prices. As a result, inflation ended 2019 at the central bank’s 3% target, up from 2.7% in November, but below the central bank’s expectation of 3.4% (updated in the 4Q19 Inflation Report). Given the recent appreciation of the Chilean peso, the expected pass-through to consumer prices could be lower than initially anticipated by the central bank (3.5% inflation expected for 2020), which along with poor internal demand, could make lower rates ahead viable. Despite the lower-than-expected result, our diffusion index (variations above and below the 3% target) shows inflation becoming more widespread, mainly due to tradable prices, and in line with our expectation of above-target prints in coming months. However, some moderation thereafter is likely as weak internal demand (along with some regulated price caps) and the recent CLP appreciation diminish pressures, leading to near-target inflation for 2020. ** Full story here.


Manufacturing and construction activity posted year-over-year declines in November. Manufacturing fell 4.5% yoy in November and 3.9% in the quarter ended in the same month. On a sequential basis, manufacturing decreased 3.3% mom/sa, after advancing 4.0% in October. Moreover, output fell 6.9% yoy during the first eleven months of the year, with most sectors registering declines throughout the year. The breakdown shows that the car industry decreased 22.5% yoy, followed by “machinery and equipment” (-16.3% yoy) and “shoes and leather goods” (-11.6%). Furthermore, INDEC also reported that construction activity dropped in November, relative to the same month of 2018. Construction activity decreased 5.2% yoy in November and 7.8% in the quarter ended in the same month. On a sequential basis, construction rose 1.2% mom/sa, but fell 23.3% qoq/saar. Finally, employment in the sector contracted 7.6% yoy in November, amounting a cumulative drop of 3.8% during the first eleven months of the year.


Day Ahead: At 9:00 AM, November’s industrial production will be released. We expect a 0.7% mom/sa decrease, leading the year-over-year rate to -0.8%.


Day Ahead: At 9:00 AM, INEGI (the statistics institute) will publish December’s CPI, which we expect to increase 0.53% MoM. Assuming our forecasts are correct, headline and core CPI would print at 2.80% YoY (from 2.98% in November) and 3.60% YoY (from 3.65%), respectively.


Day Ahead: At 8:00 PM, the Central Bank of Peru (BCRP) will publish its first monetary policy decision of the year. We expect the BCPR to keep the policy rate stable at 2.25%, maintaining an expansionary monetary policy stance in response to soft economic activity and below target inflation.

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