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Outlook
remains robust as external sector benefits from increasing global demand
Consensus Forecast panellists expect that the Chilean economy will step up
the pace observed in the first quarter and anticipate the economy to
expand by 4.9% in the second quarter. Moreover, economic growth
should remain robust in the second half of the year, resulting in 4.9%
expansion for the full year, as healthy global demand and favourable
commodity prices keep the growth engine going. In 2005, the economy
is anticipated to keep up the pace.
Chile
steers clear from deflation
Chile is leaving the deflationary bout that lasted for two months between
March and April this year behind. In June, consumer prices increased
0.43%, which was well above market expectations of 0.35% but below the
0.52% increase observed in May. Transportation costs experienced a
notable upward shift and thus accounted for the lion share of the June
price increase, assisted by higher housing costs. As a result of the
June price spike, the annual rate of consumer price variation, which was
negative in April (-0.3%), rose from 0.6% in May to 1.1% in June.
Moreover, core inflation, which had also briefly dipped into negative
territory also resurfaced. In June, the core inflation index, which
excludes volatile categories such as oil and fresh fruits and vegetables,
increased 0.34%, which took the annual rate from 0.1% in May to 0.6% in
June. Prices thus seem to be developing according to the Central
Bank’s expectations, which had seen price movements returning to normal
from a temporary deflationary period, amid the pickup in domestic demand.
In its last policy report from May 2004, the Central Bank confirmed that
inflation should reach the central target of 3.0% within the usual policy
horizon of 24 months. In order to achieve this objective the Central
Bank is likely to maintain its accommodative monetary policy stance and
should abstain from raising its policy rate - currently at 1.75% - in the
near future despite the resilient economic growth figures. Consensus
Forecast panellists share the assessment of the Central Bank and
maintained their year-end inflation forecast unchanged over last month at
2.0% and 2.8% for the end of 2005.
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