Chile’s CPI inflation remains above target as central bank maintains tightening bias

Chile’s consumer price index-led inflation remained above target in May, well above the target price as the country’s central bank continued tightening bias in the monetary policy as unemployment continued to rise.

Prices increased 4.2 percent from the year earlier, the National Institute of Statistics reported on Wednesday. The median forecast of 14 analysts surveyed by Bloomberg was for inflation of 4.3 percent. In the month, prices gained 0.2 percent, the agency said. Also, core prices, excluding energy and food costs, dropped 0.1 percent in May, posting the first decline in over two years.

Policy makers retained their tightening bias in the quarterly monetary policy report this week, hinting that they may move to a neutral stance after inflation slowed in the three months through April and economic growth remained weak. Inflation has stayed above the central bank’s 2-4 percent target range for most of the past two years, Bloomberg reported.

"The inflation slowdown is crystallizing, even if we still have volatility in some products," said Benjamin Sierra, Economist, Scotiabank, Chile.

The central bank had raised interest rates twice at the end of 2015 to 3.5 percent. Further, the central bank indicated this week that borrowing costs will probably rise again, though not any time soon. Economists surveyed by the central bank forecast a quarter-point increase during the first half of 2017.