Chilean inflation is likely to have stayed at 4.2% y/y in May, said Societe Generale in a research report. Inflation had risen in January to 4.8% y/y from December’s 4.4%, on certain changes in government administrative charges. Inflation moderated in following months and decelerated to 4.2% in April.
Meanwhile, Chile’s core inflation is expected to moderate marginally from 0.3% m/m in April to 0.2% m/m in May, in line with the inflation projection for this year, according to Societe Generale. For this year, Chile’s headline inflation is expected to be at 4.2%. Inflation is expected to decelerate in medium term on subdued demand, worsening labor market and a stabilizing currency.
But there is a risk on the upside to the projection if the CLP declines from present levels, especially in the context of the US Fed’s tightening stance. Furthermore, there is a possibility of a delay in inflation converging to target rate as it has remained high for a longer period of time. Moreover, the central bank, during its recent meetings, noted that inflation is expected to remain more than 4% for certain months. This is an upside risk to the current rate projection, noted Societe Generale.
“Our current forecast for the overnight rate is one hike of 25bp in 2016 and two hikes of 25bp each in 2017”, added Societe Generale.
