Chilean inflation accelerates for second month as peso slumps
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.