2012 opens with lower-than-expected inflation

After red-hot economic expansion last year, Chile’s Central Bank and Finance Ministry are keeping a close eye on consumer price indices.  

“We’re confident that inflation this year will be substantially lower than last year, and we have a good start already with January inflation,” said Finance Minister Felipe Larraín in Santiago last week.
Inflation rose just 0.1 percent in January 2012, as measured by the Consumer Price Index –  slightly less than market predictions based on the rapid economic growth in 2011.
Expansion in 2011 led the consumer price index to spike above the “tolerance range” established by the Central Bank, raising eyebrows and worries that Chile may be growing “too fast.”
After a series of economic measures last year, implemented jointly by the Finance Ministry and the Central Bank, inflation seems to have slowed for the coming year, allowing for lowering interest rates later in the year.
Chilean traders and economists predict that the central bank will maintain its lending rate through March, thanks to a dynamic market at home and a growing domestic economy, before cutting its lending rate to 4.75 percent in mid-2012.
Larraín said that the international economic instability – specifically in the European Union – may help ward off inflation in Chile, although the problems abroad have not dampened Chilean growth as strongly as feared.
The big question for Chile remains the rising prices of international crude oil, which could keep pressure on the consumer price index. The world’s largest copper producer imports most of its fuel, leading some big energy consumers to look for renewable energy alternatives.
“We’re going to be monitoring rising oil prices, which could impact local inflation and make it more unlikely that the central bank will further reduce rates,” said Sergio Tricio, head of studies with Forex Chile.