Itaú BBA - CHILE – Inflation surprise as pass-through pressures materialize

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CHILE – Inflation surprise as pass-through pressures materialize

Fevereiro 7, 2020

Reflecting restrained domestic demand pressures is the near historical low non-tradable inflation

Consumer prices gained 0.6% from December to January (0.1% rise last year), above the Bloomberg market consensus and our call of 0.4%. A higher-than-expected rise in tourism packages (priced in USD) was a key factor behind the surprise, while rising food, energy prices and transportation services also lifted inflation. As a result, annual inflation picked up to 3.5% (3.0% in December), while core inflation was stable at a still-low 2.5%. The central bank has highlighted the uncertainty going forward regarding the dominance of the two opposing forces currently in play in the outlook for consumer prices: one inflationary (the accumulated CLP depreciation), the other disinflationary (weakening internal demand). Hence, caution regarding future rate moves will still likely prevail in the short term as the board opts to accumulate and digest additional information. 

Together the rise of tourism packages (10% MoM), electricity (3.0% MoM) and fuel prices (2.2% MoM) contributed 24bps to the headline inflation gain. Meanwhile, falling apparel prices was the key drag to inflation in the month. Overall, excluding food and energy prices, inflation was 0.4% (in line with the year before), as rising core goods inflation over the month (0.5%; 0.4% last year), was countered by the milder 0.3% increase for the core service component (0.4% last year).

Reflecting restrained domestic demand pressures is the near historical low non-tradable inflation (edging down 0.1pp to 2.5%; 4.1% average in the last decade). Meanwhile, energy prices (up 4pp to 9.6%) and food prices (+1.4pp to 5.1%) pulled tradable inflation up by 1.1pp to 4.4% (highest since February 2016). Tradable inflation excluding tourism packages followed a similar dynamic, up to 0.8pp to 3.7%. Meanwhile, inflation excluding food and energy prices was flat at 2.5%, below the central bank’s 3% target and when also excluding tourism packages, core inflation dropped 0.2pp to 2.0%. Meanwhile, our diffusion index remained broadly stable, as moderating non-tradable pressures offset the tradable rise, underscoring that inflation pressure is not widespread.

We expect inflation to remain under pressure in the coming months, as pass-through pressures persist, before ending the year at a near-target level of 3.3%. Weak internal demand amid anchored inflation expectations and a better performing CLP would diminish pressures. 

Miguel Ricaurte
Vittorio Peretti

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