Chile: Strong October partial activity data expected this week.

Chile: Strong October partial activity data expected this week.

CHILE

Strong October partial activity data expected this week. Activity report will be released on Thursday. We expect the pace of manufacturing production to have swung back into positive terrain in October. Our forecast is for a 5.0% y/y expansion, after a 5.6% y/y plunge in September. We look for a moderate expansion in sequential terms.

Separately, real retail sales are also expected to have expanded on a monthly basis, following a soft performance in September. If our 8.5% y/y forecast materialises, the pace of expansion on a 3mma basis would have inched up to 8.8% y/y. Domestic demand performance has remained stubbornly strong of late.

On Wednesday, the minutes of the last central bank meeting and the bi-monthly survey of traders should attract attention. The minutes will be examined for signs of discomfort with the persistently strong pace of domestic activity, in general, and demand, in particular. Indeed, while the BCCh kept its neutral bias this month, it did sound relatively more hawkish, saying that economic activity and demand indicators had been above expectations.

The neutral bias suggests no policy-rate changes should be expected near term, in line with our long-held view. That said, we continue to expect the central bank to embark on a gradual tightening cycle next year as growth momentum builds and price pressures accelerate. The December monetary policy report should bring more clarity in terms of the rate outlook in early 2013. But the recent change in tone has certainly reinforced our conviction as to our out-of-consensus call.

The bi-monthly survey of financial market participants will also be analysed for any changes in rate and inflation expectations.

On Friday, the October unemployment rate is expected to have inched up. Our forecast is for a 6.6% reading (up slightly from 6.5% in September). The median estimate of the Bloomberg survey is for a modest decline to 6.4%.