|
Headline inflation drops steeply in August
In August, consumer prices rose by 0.38%. The August reading was below the
0.44% spike registered in July but exceeded market expectations of 0.2%.
Higher transport prices were the main driver behind the August upward
movement in consumer prices and were only partially offset by lower prices
for clothes and for household equipment. The annual headline inflation
rate dropped from 2.6% in July to 2.2% in August and is now precisely in
line with the core inflation rate, which dropped from 2.5% in the
preceding month. Panellists have lowered their year-end inflation forecast
yet again by a notch since last month.
Government announces spending cuts
The low inflation rate is having repercussions on the fiscal side. On 6
September, fiscal authorities announced their intention to reduce spending
by 1.5% in nominal terms in order to compensate for lower than expected
inflation. The government had previously calculated this year’s budget
assuming an inflation rate of 3.5%. Given the current downward trend in
inflation, the government now sees inflation between 2.0% and 2.5%. In
order to accomplish the 1.0% of GDP structural surplus rule and a fiscal
deficit that does not surpass 1.0% of GDP, fiscal expenditure cannot grow
by more than 4.9% in real terms, which necessitated the cut.
Current
account in positive territory amid strong trade balance
In the second quarter, the current account balance registered a surplus of
US$ 101 Million. This surplus was below the US$ 313 Million recorded in
the first quarter this year but above the US$ 203 deficit in the same
period last year. The higher trade surplus provided the main impetus to
the improvement in the current account over the same period last year, as
imports dropped while exports remained virtually unchanged. In addition,
the deficit in the income balance also remained below the level in Q1
2001. Thus, the annual current account deficit dropped from US$ 915
million in the first quarter to US$ 611 million in Q2. Panellists have
factored in the second quarter reading into this month’s forecast by
lowering their projection for 2002 further.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Chile. For more details please click here.
|
