Chilean in­fla­tion ac­cel­er­ates for sec­ond month as peso slumps

The Pak Banker - - BUSINESS -

Chile's in­fla­tion rate rose to the high­est this year in July as the peso ap­proaches its weak­est level in more than a decade. Prices climbed 0.4 in the month, the Na­tional Sta­tis­tics In­sti­tute said Fri­day, in line with the me­dian es­ti­mate of 19 econ­o­mists polled by Bloomberg. An­nual in­fla­tion ac­cel­er­ated to 4.6 per­cent from 4.4 per­cent the month be­fore.

Cen­tral bank Pres­i­dent Ro­drigo Ver­gara told La Tercera news­pa­per over the week­end that in­ter­est rate cuts are off the ta­ble be­cause of the weak­en­ing peso and faster in­fla­tion, even as eco­nomic growth re­mains slug­gish. The cur­rency has tum­bled 11 per­cent this year, keep­ing the in­fla­tion rate at or above the top end of the tar­get range for the past 16 months. "In­fla­tion has re­mained stub­bornly high," the In­ter­na­tional Mon­e­tary Fund said it its an­nual re­port on Chile re­leased Thurs­day, while fore­cast­ing that in­ter­est rates would re­main on hold till year end.

Core in­fla­tion, which ex­cludes fruits and energy costs, rose 0.1 per­cent in July, the sta­tis­tics agency said. While in­fla­tion ac­cel­er­ates, in­fla­tion ex­pec­ta­tions two years ahead have re­mained an­chored around the 3 per­cent tar­geted by the cen­tral bank. At the same time, eco­nomic growth re­mains weak. Fi­nance Min­is­ter Ro­drigo Valdes cut the 2015 growth forecast last month to 2.5 per­cent from 3.6 per­cent as poor growth fig­ures in March, April and May in­di­cated that eight in­ter­est rate cuts in the year through Oc­to­ber and a jump in fis­cal spend­ing had failed to re­vive ex­pan­sion. The cen­tral bank has "room to adopt a wait-and-see at­ti­tude un­til the risks sur­round­ing the eco­nomic re­cov­ery dis­si­pate, given the well-an­chored in­fla­tion ex­pec­ta­tions, the pro­jected de­cline in head­line in­fla­tion, and the down­side risks to growth," the IMF said.

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