Chile’s Central Bank says the local inflation problem has not been solved

By Matthew Malinowski

Chile’s Central Bank said there’s no evidence that the slowdown in domestic inflation has taken hold, even as overall consumer-price and consumption readings head in the right direction.

The only plausible monetary policy option was to keep rates unchanged at a more than two-decade high of 11.25%, central bankers wrote in the minutes of their May 12 decision.

The risks associated with scenarios of higher inflationary pressures were “particularly complex and costly,” they noted.

“The Council agreed that the fact that headline inflation was falling and activity and consumption were continuing to adjust were not indicative that the inflationary problem had been resolved,” they wrote in the document released Monday.

“They only indicated that it was on the right track and that information still needed to be accumulated to assess whether the convergence of inflation to the 3% target had been consolidated.”

Monetary policymakers are cautious about rates as the headline and core inflation remain well above the 3% target.

However, investors expect an easing to begin in the coming months amid bets that activity and price pressures are cooling.

The monetary authority’s decision last week to raise capital requirements also stoked speculation that cuts to borrowing costs would also soon begin.

In April, annual inflation returned to single digits for the first time in 13 months, according to the National Statistics Institute.

However, consumer prices excluding volatile items rose 10.3%.

Chile’s gross domestic product grew 0.8% in the first quarter from the previous three-month period, below the 1% forecast by analysts surveyed by Bloomberg.

The activity was boosted by services such as hotels and restaurants, while mining weighed on the results.

In the minutes, council members wrote that the economic readings aligned with their forecasts.

“It was emphasized that this was good news, especially after several quarters where that had not been the tone,” they wrote.

With information from Bloomberg

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