Driving the decision was lower headline inflation, which came in at 1.8% in March (February: 2.0%), below the lower bound of the Central Bank’s 2.0%– 4.0% target. Meanwhile, core inflation was even lower in the month at 1.6%. Nevertheless, medium-term inflation expectations remained well-anchored around the middle of the Bank’s target range. On the demand side, economic activity picked up in the first quarter. A rebound in mining output, coupled with a recovering construction sector and favorable consumer and business sentiment, should eventually generate upward pressure on headline inflation. However, employment levels remain subdued, and nominal wage growth decelerated in recent months, both likely dampening inflationary pressures and making it difficult for the BCC to raise rates. In its communiqué, the Bank stated that it expects inflation, especially the underlying component, to stay low throughout most of this year, signaling that failure to enter the target range within the forecast horizon remains plausible. With inflation falling to a six-month low, seemingly on the back of the significant appreciation of the peso against the dollar since last December, the probability of a rate hike in the coming months appears less likely. Nevertheless, the board sees inflation picking up pace next year as the effects from the appreciation of the peso and the current capacity gaps fade away. As a result, the BCC is likely to stay put in the short term, before gradually increasing the rates as inflationary pressures intensify. LatinFocus Consensus Forecast panelists expect the monetary policy rate to end 2018 at 2.75% and 2019 at 3.55%. Inflation | Consumer Price Index Note: Year-on-year and monthly variation of consumer price index in %. Source: Chile National Statistical Institute (INE). -2 0 2 4 6 -0.5 0.0 0.5 1.0 1.5 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Month-on-month (left scale) Year-on-year (right scale) % % Monetary Policy Rate | in % Note: Monetary Policy Rate (TPM, Tasa de Política Monetaria) in %. Source: Chile Central Bank (BCC) 2.0 2.5 3.0 3.5 4.0 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 EMISPDF in-isb_emis from 220.127.116.11 on 2018-06-07 19:51:22 BST. DownloadPDF. Downloaded by in-isb_emis from 18.104.22.168 at 2018-06-07 19:51:22 BST. EMIS. Unauthorized Distribution Prohibited.
FOCUS ECONOMICS Chile LatinFocus Consensus Forecast | 58 May 2018 EXTERNAL SECTOR | Copper prices remain broadly stable in April Copper prices remained relatively stable throughout April, despite some volatility at the end of the month. In the last week of the month, prices hit a four- week high; they then plummeted a few days later to a one-month low. Copper prices averaged USD 3.10 per pound (equivalent to USD 6,843 per ton) in April, up just 1.0% from the previous month’s average of USD 3.08 per pound. Although April’s result reversed two consecutive months of decline in copper prices, softness observed since the beginning of 2018 persists. Nevertheless, copper prices were notably higher in April than in the corresponding month last year, increasing 20.4% year-on-year.
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- Summer '18
- Sagar Arora
- Inflation, LatinFocus Consensus Forecast