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Central
government incurs surplus in first quarter
In the first quarter, the central government surplus reached of 113.0
billion pesos (US$ 153 million) equivalent to 0.2% of annual GDP. Central
government revenues increased owing to improved asset management and
higher tax collection. Tax collection increased by 4.8% in real terms
compared to the same period last year. Higher valued added tax, income tax
and trade tariffs accounted for the improvement. However, the improved tax
take was offset by declining copper revenues, as the government withdrew
less money from the copper stabilization fund. Expenditures dropped 2.8%
over first quarter 2002, amid lower capital investment and diminished
current expenses. Fiscal authorities estimate that revenues will drop in
coming quarters due to lower import duties resulting from recently signed
free trade agreements. Chile signed a free trade pact in 2002 with the
European Union that came into force in February of this year, which
immediately knocked off 80% of the tariffs between the countries involved.
The free trade agreement signed between Chile and the United States on 6
June is anticipated to eliminate virtually the same percentage of duties
on goods traded between the two countries. The Chile–U.S. free trade
agreement, which had been worked on for over a decade is anticipated to
receive a rapid approval in both countries’ legislatures. For the
remainder of this year, revenues will also suffer from depressed sales of
state copper corporation Codelco, which represents a major source of
government income. Sales for the world's largest copper producer fell 8.6%
in the first quarter due to Codelco’s decision to stockpile 200,000 tonnes
of 2003 copper production to offset poor market conditions. The company
expects to release the stocks when world inventories begin to fall. In the
second quarter, the public sector is likely to incur a deficit, as tax
returns are paid out in May and June. Despite the recent developments in
public sector balances, the government has maintained its 0.7% of GDP
deficit target for the full year. Consensus Forecast panellists confide in
the government’s ability to deliver on its fiscal deficit target and
estimate authorities to overshoot the target just a notch.
Consumer prices drop again in May prompting rapid decline in annual
inflation
In May, consumer prices dropped 0.38%. The downward movement represents
the second consecutive month of falling consumer prices and was lower than
expectations, which had seen no price movements in May. Lower transport
prices propelled the May price drop but other categories such as housing,
clothes and household equipment also contributed. Only rising health costs
provided some upward pressure on consumer prices. As a result of the May
price decline, annual headline inflation dropped half a percentage point
from April to 3.5% in May, a full percentage point below the 4.5% annual
inflation reading registered in March. The price index for core inflation
also dropped 0.11% in May, taking the annual rate from 3.1% in April to
2.8% in May. Thus, headline and core inflation continue to converge with
the centre of the Central Bank’s 2% to 4% target range, reconfirmed in its
May 2003 inflation report. Consensus Forecast panellists have reflected
the recent downward trend in headline inflation by lowering their year-end
inflation forecast a notch over last month to 3.3%
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