Unemployment, the main concern for the government and the major obstacle to a full recovery from last year’s recession, also showed positive signs in October as seasonal hiring kicked in.  In the moving quarter from August to October 2000, unemployment dropped for the first time since February this year, and now stands at 10.0% down from the 10.7% reported for the previous period.  However, despite dropping unemployment consumer-driven indicators disappointed in October.  According to the National Statistical Institute (INE), supermarket sales registered a meagre 3.8% expansion, the lowest growth rate since May this year, and the National Trade Chamber (CNC) actually reported a 2.3% contraction for October supermarket sales.
 

Slowdown in Q4 anticipated.  The mixed signals – the incipient and long-overdue recovery in investment as well as dropping employment on the one hand and sluggish consumption on the other hand – and a higher comparison base have prompted Consensus Forecast panellists to anticipate a slowdown in the fourth quarter this year.  The less optimistic global scenario in 2001 has prompted panellists to revise their growth forecasts for next year downward.

November inflation lower than expected.  In November, consumer prices increased 0.34%.  This was well below the rates registered in September and October, when consumer prices spiked 0.6%, and also below market expectations of around 0.4%.  Despite the moderate price increase, which is also below the monthly average price increase in the past 12 months (0.38%), annual inflation increased from 4.5% in October to 4.7% in November.  The November price hike was prompted by higher transport prices and, to a lesser extent, higher housing prices.  The increases in both categories follow yet another increase in oil prices.  Fuel prices spiked 2.0% in November and over the past 12 months they are up almost 40%.  Underlying inflation -- the main indicator observed by the Central Bank, which excludes fuels and other volatile items -- increased 0.2% over the previous month, taking the annual rate to 3.3% from 3.1% in October.  Underlying inflation is now approaching the current 3.5% (corresponding to 4.6% CPI increase) Central Bank forecast.

Current account remains in the red.  According to preliminary Central Bank data, the current account deficit reached US$ 527 million in the third quarter this year.  The Q3 deficit is lower than the deficit registered in the second quarter this year but exceeds the deficit in the same quarter last year by US$ 61 million.  The deterioration of the current account balance compared to last year was prompted by a higher deficits in the services balance.  Net outflows in the services balance were partially compensated by a higher surplus in the trade balance.  The capital account balance (net of reserve changes) registered net inflows of US$ 656 million (US$ 398 million in Q3 1999) and thus more than compensated the gap in the current account.  Direct investment deteriorated significantly over Q3 1999 and actually incurred a deficit of US$ 529 million, partially offset by higher portfolio investment.  Net outflows were matched by net inflows of short-term capital. 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Chile.  For more details please click here.

For five-year forecasts, please click here.