Latam Macro Snapshot

Consumer prices in Chile surprised to the downside in December, by declining 0.2% m/m(consensus: 0.1%; BNP Paribas forecast: 0.2%). As a result of the monthly slide, the annualinflation rate declined to 2.7%, a level slightly below the 3% official target (Chart 1).

    The main surprise came from the food component. Indeed, while food price deflation was expectedto have continued in December, the actual decline in food prices (1.4% m/m) exceeded ourforecast. Thus, the food component subtracted 0.3pp from the headline advance.

    The divergence was largely the result of a sizable slide in fresh food prices (down 5.2% m/m),which reflects benign, seasonal supply conditions that are expected to revert at some point. Thevariation within the rest of the components stood fairly in line with expectations.

    The downside inflation surprise coupled with subpar economic growth has reinforced expectationsof rate cuts ahead. We currently call for two 25bp rate cuts, the first of which will likely happen inJanuary (the consensus agrees with this view).

    While headline inflation surprised to the downside, non-tradable prices advanced 0.5% m/m to a4.0% y/y pace (slightly ahead of the 3.9% y/y pace seen in November, Chart 2). We havehighlighted that the disinflation trend has been mainly driven by tradable prices, which have beenhelped by a strong currency (Chart 3). The persistence of non-tradable price pressures in excessof the 3.0% official target limits the scope of potential easing efforts, in our view.