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Consumer prices drop in June amid lower fuel prices
In June, consumer prices declined 0.1%. The unexpected drop — markets had
anticipated an increase of 0.2% — was driven by virtually all categories
surveyed by the National Statistical Office (INE) but were most pronounced
in transport. Lower fuel prices, which declined almost 2%, were key behind
the June price drop. Only two categories, housing and household goods
experienced price increases. The June price decline lowered annual
headline inflation from 2.1% in May to 2.0%. The annual core inflation
rate — the key indicator monitored by the Central Bank – dropped from 3.0%
in May to 2.7% in June and is now below the centre of the Bank’s medium-term
inflation target range of 2 to 4%. The Central Bank sees year-end core
inflation at 2.5% and headline inflation at 2.7%. Panellists have factored
the more benign inflationary environment into their forecasts, which were
lowered 0.3 percentage points since last month.
Exchange rate weakens considerably in June
After four months of reduced volatility with a strengthening trend, the
Chilean peso weakened abruptly in June. The peso, which had hovered around
the 650 pesos to the US$ at the end of May even tested the 700 peso per
US$ threshold twice before ending June at 698 pesos per US$. Compared with
the level reached at the end of May, the Chilean currency lost 6.2% of its
value in nominal terms against the US$. This was the most rapid
deterioration observed in years and exceeded the speed at which the peso
depreciated in 2001. Concerns over the spill-over effects resulting from a
potential deterioration in Brazil were key drivers behind the currency
weakness. While the peso has gained some territory subsequently, reaching
692 pesos to the US$ on 5 July, panellists have maintained their exchange
rate forecasts virtually unchanged since last month. This may either
reflect the belief that the situation in Brazil may not deteriorate
further or the confidence that markets will know how to differentiate
between the regional economies, thus limiting the spill-over effects to
the region’s safest economy.
May
trade data bode well
In May, the trade balance registered a surplus of US$ 154 million. Despite
a day worked less in May this year compared to the same month last year,
the slide in trade flows seems to have come to a halt. Both, exports and
imports still decreased over May 2001 but the comparison rates of
annualised flows are showing an improvement for the first time in a year.
While it is still too early to call for a trend change, the improvement
may be due to the much anticipated pickup in global demand. Moreover,
consumer goods imports improved markedly, which may indicate a mild
recovery of domestic demand. The Consensus is optimistic about trade for
the remainder of the year and expects exports and imports to remain
virtually unchanged this year compared to 2001 after the slump in the
first half of the 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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