Chile’s consumer-price index unexpectedly fell in June, fueling bets that the central bank will start lowering its benchmark interest rate later this month.
Consumer prices dropped 0.2% from May, surprising economists surveyed by Bloomberg who expected them to rise 0.1%. Annual inflation slowed to 7.6%, the national statistics institute reported Friday. Chile’s central bank targets inflation at 3%.
A closely-watched core price gauge that excludes volatile items rose 9.1% in June from the previous year, down from 9.9% the month before.
The central bank is expected to cut the key rate at its July 28 meeting after keeping it unchanged at 11.25% for the past five meetings. Annual inflation has retreated from last year’s high above 14% and activity has weakened. In the minutes of its June 19 meeting, the central bank said it will soon start cutting rates if current economic trends continue and inflation pressures dissipate.
What Bloomberg Economics Says
“Slower inflation in June indicates Chilean activity and domestic demand are downshifting toward sustainable levels after rising above potential in 2022. The results were in line with central bank projections and should allow policymakers to begin cutting interest rate at their July 28 meeting.”
— Felipe Hernandez, Latin America economist
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Central bankers in Chile are getting the upper hand in their fight against inflation that had been fueled by more than $50 billion in pension fund withdrawals and public transfers that reached 90% of households during the pandemic. Russia’s invasion of Ukraine and the subsequent surge in commodity prices 2022 came as an additional shock.
The central bank’s economic activity index, a proxy for gross domestic product, shrank 2% in May, more than anticipated by economists. Chile is one of few major Latin American economies that is expected to contract this year, according to estimates compiled by Bloomberg.
Read More: Chile Central Bank Says Rate Cuts Coming If Economic Trends Hold
--With assistance from Rafael Gayol and Philip Sanders.
(Updates with Bloomberg Economics’ comment, chart and background starting in fourth paragraph.)