Chile Consumer Prices Post First Monthly Drop Since December

Valentina Fuentes and Matthew Malinowski
·2-min read

(Bloomberg) -- Chile’s consumer prices posted their first monthly decline this year in June as the central bank slows the pace of monetary easing and braces for electricity cost hikes.

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Prices fell 0.1% in June, compared to the median forecast of no change among analysts in a Bloomberg survey. The annual inflation rate ticked up to 4.2% in the chained series, the National Statistics Institute reported on Monday.

Inflation remains above the 3% target, and is unlikely to hit that goal until the first half of 2026, later than previously forecast, central bank Governor Rosanna Costa said in June. Prices will come under pressure after lawmakers agreed to hikes in electricity costs that were frozen in late 2019. Much of the impact will come in the first half of 2025, Finance Minister Mario Marcel said last week.

The central bank has gotten some help in its inflation fight from the peso, which has gained roughly 4.3% since mid-April. A stronger currency helps to keep a lid on import costs.

“Softening demand and the lagged effect of the CLP rebound since mid-April helped to ease pressures in June,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note. “We expect the central bank will persist with gradual interest rate cuts.”

Clothing prices tumbled 6.1% on the month in June, while transportation declined by 0.9% and household items dropped by 2.2%. On the other hand, food and non-alcoholic beverages rose by 1.3%, according to the statistics agency.

Chile’s central bank slowed the pace of interest rate reductions last month with a quarter-point drop to 5.75%. The board also said it had already implemented the bulk of this year’s planned borrowing cost cuts, and warned about the impact of higher electricity tariffs going forward.

Policymakers lifted their 2024 year-end inflation forecast to 4.2% from 3.8% in their quarterly monetary policy report published in June. The 2025 estimate was also raised to 3.6% from 3%.

Discounts on goods and services as part of Cyberday sales at the start of June helped to keep prices down temporarily, Goldman Sachs Group Inc. economist Sergio Armella wrote in a note.

“We anticipate a high inflation reading in July as higher transmission and generation costs are reflected in higher electricity tariffs and the effects of the June Cyberday sales” revert, Armella wrote.

Traders see inflation at 3.6% in 12 months and expect the key rate to end this year at 5.25%, according to a central bank survey published on Monday.

--With assistance from Giovanna Serafim.

(Updates with the rising peso in the fourth paragraph, analyst comments starting in the fifth and traders survey in the last)

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