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Inflation
on the rise. In January, consumer prices increased 0.33%
over December, in line with market expectations. The increase was
driven by transport and housing prices, which increased at monthly rates
of 2.0% and 1.2% respectively. The annual inflation rate rose to
4.7% from 4.5% in December. Underlying inflation, which excludes
fruits, vegetables and fuels, increased by 0.1% in January, leaving the
annual rate unchanged at 3.4%. In its monetary policy report,
presented to Congress on 23 January, the Banco Central de Chile maintained
that the inflation increase observed in 2000 was mainly due to transitory
pressures associated with the oil price increase, which have not affected
the underlying trajectory of consumer prices in a permanent way. As
a result, the monetary authority perceives the current developments in
consumer prices as consistent with its objective to maintain inflation
stable within a range of 2% to 4%. In fact, the Bank estimates that
inflation will converge towards the centre of the range over the next two
years. For the end of 2001, the Central Bank sees inflation dropping
to 3.4% and declining further to 2.9% by the end of 2002.
Central
Bank slashes interest rate. On 18 January, the Central
Bank lowered the target interest rate by 25 basis points to 4.75%.
The decision was taken in consideration of an increased likelihood that
lower global growth prospects would create a less favourable environment
for domestic economic growth. However, the slowdown of the global
economy may be partially offset by lower international financing costs,
which should spur investment. Nevertheless, unemployment remains
relatively high and indicators for consumer confidence remain depressed.
Consequently, monetary authorities foresee that inflationary pressures are
likely to remain subdued this year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Chile. For more details please click here.
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