Chile: CPI inflation surprised to the upside in October lifted by food prices

Chile: CPI inflation surprised to the upside in October lifted by food prices

Florencia Vazquez - Market Economics
Latam Macro Snapshot | 08 Nov 2012 21:14 |

Consumer prices were reported to have advanced 0.6% m/m in October, a result that stood visibly ahead of both our forecast and the median estimate from the Bloomberg survey (both: 0.3% m/m). The annual inflation rate accelerated to 2.9% last month, but remained slightly below the 3% official target.

The traditional measure of core consumer prices rose a visibly more modest 0.2% m/m and was up at a subdued 2.1% y/y pace. The more restrictive measure of core prices (IPCX1) also rose a modest 0.2% m/m. Its y/y pace was little changed at 2.0% (Chart 1).

In general, beyond monthly volatility, we expect inflation to accelerate gradually as growth momentum builds next year. We look for CPI inflation to return to above-target territory in 2013 lifted by renewed underlying inflation pressures. This should prompt the central bank to start a tightening cycle in 2013.

We highlight that after turning temporarily negative in early Q3, seasonally adjusted headline price pressures have reaccelerated lately. Core price pressures, meanwhile, seem only to have stabilized and still remain subdued (Chart 2).

Details:

- Below the headline, the largest surprise came from food prices that advanced a whopping 2.2% m/m in October. This component, that had already posted a 2.3% m/m advance in September, was running at a 9.1% y/y pace last month and contributed 0.5pp to overall inflation. We were looking for past food price increases to start affecting the headline reading in the second half of the year. But food prices were further lifted by specific increases in fresh food prices last month (up 9.3% m/m, Chart 3). In particular, potato prices rose a whopping 33% m/m and added 0.2pp to the headline CPI monthly advance — the largest monthly contribution in October. The sharp increase in prices resulted from a lower supply of potatoes.

- The housing component also advanced 1.2% m/m in October and contributed 0.15pp to headline inflation. Housing prices were lifted by hikes in electricity and natural gas tariffs.

- In contrast, transport and clothing prices stood out among the items that declined in October (down 0.3% and 1.7% m/m, respectively). These two components subtracted 0.1pp from the headline reading last month. Transport prices were depressed mainly by a decline in gasoline prices (down 0.8%).

- Tradable prices advanced 0.8% m/m last month, while prices of non tradable components only advanced 0.3% m/m. The y/y pace of tradable components has been accelerating steadily since last July. Non tradable inflation, meanwhile, has remained relatively stable at a higher 4-5% pace (Chart 4).