Chile CPI above target at 4.2% as Central Bank keeps bias

Bloomberg

Chile’s inflation rate was unchanged in May, above the target range, as central bank President Rodrigo Vergara used price-growth to explain the bank’s continued tightening bias in monetary policy as unemployment rises.
Prices increased 4.2 percent from the year earlier, the National Institute of Statistics reported on Thursday. In the month, prices gained 0.2 percent, the agency said.
Policy makers retained their tightening bias in the quarterly monetary policy report this week, scotching speculation they may move to a neutral stance after inflation slowed in the three months through April and economic growth remained weak. Inflation has stayed above the central bank’s 2 percent to 4 percent target range for most of the past two years. Still, the bank has signaled it is pushing back the next rate rise as price-pressures ease and unemployment begins to rise.
“Inflation has been above the target range for some time and we need to be particularly vigilant about that,” Vergara said Tuesday in Santiago. The tightening “bias is perfectly coherent with the global message of the monetary policy report.”
After raising rates twice at the end of last year to 3.5 percent, the central bank indicated this week that borrowing costs will probably rise again, though not any time soon. Economists surveyed by the central bank forecast a quarter-point increase during the first half of 2017.
“The inflation slowdown is crystallizing, even if we still have volatility in some products,” said Scotiabank Chile economist Benjamin Sierra. The numbers “indicate sellers might be fighting for lower demand.” Core prices, which exclude energy and food costs, declined 0.1 percent in May, the first monthly decline in at least two-and-a-half years.