Introduction to Chile’s Economy
Chile, the world’s largest copper producer, has seen a significant rise in consumer prices in July. According to the statistics agency INE, prices increased by 0.9% last month, exceeding the expected increase of 0.6% predicted by economists polled by Reuters.
The Current State of Inflation
The annual inflation rate has reached 4.3%, up from 4.1% in the previous month. This exceeds the central bank’s target range of 2% to 4%. The increase in prices is mainly driven by higher costs of housing, particularly due to higher electricity prices, as well as rising prices of food and non-alcoholic beverages.
Impact on Interest Rates
The central bank had cut the benchmark interest rate by 25 basis points to 4.75% last week but stated that future moves would depend on the evolution of the macroeconomic scenario and its implications for inflation’s convergence to its target. However, with the latest inflation figures, some economists believe that the central bank may be less likely to lower borrowing costs again this year. Barclays economists noted that the consistently stronger economic activity should limit the central bank’s willingness to lower borrowing costs again this year.
Economist Predictions
Scotiabank economists also stated that "monetary policy has no room for cuts" in the face of consecutive surprises in core inflation and an acceleration in non-mining gross domestic product. However, some market watchers still believe that a fresh interest rate cut is possible at the central bank’s next meeting on September 9. JPMorgan stated that "this single report is not enough to change our forecast for a new 25-basis-point policy rate cut in September," but it does make such a move contingent on the August consumer price index report.
Breakdown of Price Increases
The monthly consumer price rise in July was driven mainly by higher costs of housing and electricity prices. Prices of food and non-alcoholic beverages also rose. The only group of the 13 surveyed that posted a price decrease was insurance and financial services.
Conclusion
In conclusion, Chile’s consumer prices have risen more than expected in July, driven by higher costs of housing and electricity prices. This has led to questions about the likelihood of the central bank delivering fresh interest rate cuts in the near term. While some economists believe that the central bank may be less likely to lower borrowing costs again this year, others still predict a possible interest rate cut at the central bank’s next meeting. The future of Chile’s economy remains uncertain, and the next consumer price index report will be closely watched to determine the central bank’s next move.
