Monday March 18 2019
Chile GDP Growth Beats Forecasts in Q4
Banco Central de Chile | Stefanie Moya | stefanie.moya@tradingeconomics.com

The economy of Chile advanced 3.6 percent year-on-year in the fourth quarter of 2018, following a downwardly revised 2.6 percent growth in the previous period and beating market expectations of a 2.9 percent expansion. Growth was mainly driven by a rebound in mining activity.

Year-on-year, fixed investment advanced further (5.6 percent from 4.9 percent in Q3), mostly boosted by investment in machinery and equipment (12.1 percent from 8.4 percent). Meanwhile, both household consumption (3.6 percent from 4.1 percent in Q3) and government spending (1.3 percent from 1.9 percent) slowed. Additionally, net external demand contributed negatively to growth, as imports rose 6.6 percent (vs 8.0 percent in Q3), led by purchases of automobiles and industrial and mining machinery while exports advanced at a slower 3.3 percent (vs 1.3 percent in Q3), driven by sales of copper, salmon and fruits.

On the production side, mining activity grew 1.3 percent, after shrinking 1.9 percent in Q3, mostly boosted by copper production (1.9 percent from -1.7 percent). Also, the manufacturing sector expanded at a faster pace (3.6 percent from 1.0 percent), mainly due to food (5.6 percent from 1.5 percent), metallic, machinery and equipment and others (2.0 percent from -1.1 percent); chemicals, rubber and plastic (4.7 percent from 0.2 percent) and paper and printing (7.2 percent from 3.0 percent). Additionally, faster growth was recorded in internal trade (3.8 percent from 2.9 percent); agriculture (5.7 percent from 4.0 percent); fishing (13.9 percent from 3.0 percent);  financial services (6.0 percent from 4.5 percent); business (2.9 percent from 2.2 percent);  personal services (3.9 percent from 3.8 percent); restaurants & hotels (2.4 percent from 1.5 percent); transport (5.1 percent from 3.0 percent); communication and information (3.9 percent from 3.6 percent); construction (3.1 percent from 3.0 percent); and utilities (4.2 percent from 2.7 percent). Meanwhile, real estate activities growth eased (3.3 percent from 3.6 percent).

On a seasonally adjusted quarterly basis, the gross domestic product expanded 1.3 percent, after a downwardly revised 0.2 percent gain in the prior quarter. 

Considering full 2018, the Chilean economy grew 4.0 percent.





Thursday January 31 2019
Chile Hikes Interest Rate to 3%
Central Bank of Chile | Mario | mario@tradingeconomics.com

The Central Bank of Chile raised its benchmark interest rate by 25 bps to 3.00 percent on January 30th 2019, as widely expected. The decision was unanimous. Policymakers said that the decision considered the evolution of macroeconomic conditions and reaffirmed its commitment to conduct the monetary policy with flexibility so the inflation rate stands at 3 percent over the next two years.

Statement from the Central Bank of Chile:

Internationally, incoming data point to growth moderating in the world economy beyond forecasts, accompanied by volatile financial markets and persistent political and economic risks. In the developed world, economic expectations have deteriorated. Conjunctural Eurozone growth data again brought negative surprises, while China's activity indicators moderated further, prompting its authorities to announce new stimuli. Meanwhile, recent US data remains dynamic. Inflation slowed in most countries as a result of the drop in oil prices in the last quarter of 2018. 

In this context, the main central banks have signaled a more gradual normalization of their monetary policies, which market prices have internalized. Long-term interest rates have fallen in several economies, stock markets have risen from end-of-2018 levels and capital flows have returned to emerging countries. The oil price has recovered partially in 2019 so far, while copper has fluctuated around USD 2.7 per pound. 

Regarding local financial conditions, the peso continued to fluctuate significantly, but its current value in terms of US dollars shows little variation from the last Meeting. This, in a context in which the local risk indicators remain contained, interest rates have fallen slightly to converge with the global trend, while the stock market (IPSA) has aligned with the increases in Latin American stock markets. In the credit market, annual credit growth accelerated towards the end of 2018, especially in consumer and commercial loans. Interest rates remain low from a historical perspective.

December’s monthly inflation was negative (-0.1%), affected mainly by a drop in the more volatile items (i.e. energy and foodstuffs). With this, in y-o-y terms, CPI inflation was 2.6% and for CPIEFE was 2.3%, both figures slightly below the December Report’s estimates. Those prices most sensitive to the activity gap, including unregulated services in the CPIEFE, continued to rise steadily. Inflation expectations for December 2019 declined to 2.8%, while expectations two years out remain around 3%.

The Board’s decision considered that the evolution of macroeconomic conditions continues to warrant a gradual withdrawal of the monetary stimulus, in line with what was foreseen in the last Monetary Policy Report. At the same time, it reiterated that it will proceed with this process gradually and cautiously. In particular, the next Monetary Policy Report will pay special attention to the evolution of the international scenario and its implications for the convergence of inflation to the target. Accordingly, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.




Tuesday December 04 2018
Chile Holds Interest Rate at 2.75%
Mario | mario@tradingeconomics.com

The Central Bank of Chile left its benchmark interest rate unchanged at 2.75 percent on 4 December 2018, matching market expectations. The decision was unanimous. Policymakers mentioned that weaker global and domestic growth is expected ahead and underscored that the peso and equities remain highly volatile. Nonetheless, a hawkish stance prevailed, as the minutes suggested higher rates to normalize the previous easing cycle. They also noted that while oil prices have plunged recently, prices of most commodities remain stable. As for consumer prices, policymakers underscored that inflation expectations declined since the last meeting. The annual inflation rate in Chile eased to 2.9 percent in October 2018 from 3.1 percent in the previous month.

Minutes from the Central Bank of Chile:

Externally, the data continues to confirm that global growth is moving to a stage of lower expansion than in previous years. Since the previous Meeting, less auspicious activity figures have been noted in the Eurozone and China, a downward adjustment in the prices of risky assets in developed markets and a market perception that the process of monetary normalization in the United States will be more limited next year. Also worth noting is the significant drop in the price of oil, which reduces some short-term inflationary pressures, in a context where the other commodity prices show no big changes. The Brexit is nearing definition, while the trade conflict between the US and China seem to have opened some formal room for negotiating.


The Chilean peso and stock market continued to fluctuate significantly in recent weeks, while longer-term interest rates decreased in line with events in the developed markets. Risk indicators posted minor changes. The credit market continues to be characterized by low interest rates and higher growth in commercial and consumer loans.

Third-quarter 2018 national accounts showed a slowdown in activity beyond expectations, caused mostly by mining- and manufacturing- specific factors. In the latter case, the calendar effect took a toll on activity in September, which was fully undone October according to sectoral indicators. On the expenditure side, the data continues to point to significant momentum from investment and somewhat slower from consumption, although October’s sectoral retail data suggests a strengthening of the latter. The revision to remuneration indexes by the INE and the consideration of the effect of immigration on the behavior of employment confirm the vision of a labor market that evolves in line with the growth pace observed since mid-2017. For the period 2018-2020, the market outlook (EES) points to an annual GDP expansion of 4% this year and 3.5% in 2019 and 2020.

October’s inflation (0.4%) was in line with forecasts, so annual CPI inflation decreased to 2.9% and CPIEFE inflation remained at 2.1%. The prices that are more sensitive to the activity gap, such as non-regulated utility rates in the CPIEFE, continue to accelerate steadily. At shorter terms, private inflation expectations have fallen in line with the lower international prices of oil and fuels, while at two years they remain around 3%.

The Board’s decision considered that the analysis contained in the December Monetary Policy Report, and the data available at the statistical close, confirm that the evolution of macroeconomic conditions make it necessary to reduce the monetary stimulus, a process that will continue to be implemented gradually and cautiously. Key to this judgment is the evaluation of the size of capacity gaps compared to the magnitude of the monetary stimulus: while the former have narrowed and inflation has increased, monetary policy remains highly expansionary. With this, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.




Monday November 19 2018
Chile GDP Grows 2.8% YoY in Q3, Lowest in a Year
Banco Central de Chile | Luisa Carvalho | luisa.carvalho@tradingeconomics.com

The economy of Chile advanced 2.8 percent year-on-year in the third quarter of 2018, slower than an upwardly revised 5.4 percent expansion in the previous period which was the strongest increase since 2012. Figures came slightly below market expectations of a 2.9 percent advance, pointing to the slowest growth since the third quarter of 2017. Household consumption, government spending and exports increased at a softer pace. Among economic activities, weaker growth was widespread, and the mining sector contracted.

Year-on-year, both household consumption (3.8 percent vs 4.4 percent in Q2) and government spending (2.3 percent vs 3.5 percent) rose less. In contrast, fixed investment grew slightly faster (7.1 percent vs 7.0 percent), boosted by investment in machinery and equipment (11.8 percent vs 12.5 percent) and investment in construction (4.4 percent vs 3.8 percent). Also, net external demand contributed negatively to growth, as imports jumped 8.4 percent (vs 10.2 percent in Q2), amid higher purchases of metallic products, machinery and equipment; fuels and chemicals. At the same time, exports advanced at a softer clip (1.7 percent vs 7.5 percent in Q2), led by sales of food and fruits.

On the production side, output growth slowed in: internal trade (3.2 percent vs 8.4 percent in Q2); restaurants & hotels (1.8 percent vs 3.8 percent); transport (2.7 percent vs 4.9 percent); communication and information services (2.5 percent vs 3.8 percent); financial services (3.9 percent vs 4.8 percent); business services (3.0 percent vs 4.2 percent) and personal services (4.0 percent vs 4.3 percent). Also, the manufacturing sector expanded less (0.6 percent vs 7.7 percent), amid slowdowns in production of food (0.3 percent vs 9.1 percent), wood and furniture (0.6 percent vs 6.3 percent); non-metallic and basic metallic minerals (1.8 percent vs 6.5 percent). Meantime, weaker growth was recorded in construction (4.1 percent vs 4.6 percent); utilities (1.2 percent vs 5.0 percent); agriculture (7.5 percent vs 10.2 percent) and fishing (2.3 percent vs 11.2 percent). In addition, mining contracted (-2.7 percent vs 5.4 percent), led by declines in copper (-2.6 percent vs 5.4 percent) and other mining (-3.3 percent vs 4.6 percent). On the other hand, real estate activities continued to advance solidly (3.8 percent vs 3.4 percent).

On a seasonally adjusted quarterly basis, the Chilean GDP expanded 0.3 percent, compared to a 0.7 percent rise in the second quarter of 2018 and below market expectations of 0.4 percent. It is the weakest quarterly expansion since a 0.6 percent contraction in Q1 2017.


Friday October 19 2018
Chile Raises Interest Rate by 25 Bps to 2.75%
Mario | mario@tradingeconomics.com

The Central Bank of Chile raised its benchmark interest rate by 25 bps to 2.75 percent on 18 October 2018, matching market expectations. The decision was unanimous to ensure that inflation perspectives remain close to the target of 3% over the two-year horizon. Policymakers mentioned that global and regional growth prospects deteriorated since the last minutes, while consumer prices jumped to a two-year high in September, underscoring rising yields. Inflation in Chile increased to 3.1 percent year-on-year in September of 2018 from 2.6 percent in the previous month. It was the highest inflation rate in two years.

Statement by the Central Bank of Chile:

The external scenario continues to be characterized by financial markets' volatility, in a context of increasing divergence of the US economy from its peers in the developed world. At the same time, trade tensions have tended to focus on US-China relations. The Federal Reserve raised its benchmark rate again in September, while the market adjusted upward the expected trajectory for 2019 and 2020. This pushed long-term interest rates and risk aversion up in most of the countries, and the prices of riskier assets saw important corrections at the global level. In the Eurozone, Brexit negotiations and the definition of Italy’s fiscal deficit have created uncertainty in markets. In turn, China increased the monetary impulse once more, while its currency continued to depreciate against the dollar. Financial pressures on the rest of the emerging economies have tended to moderate. Commodity prices, although with important ups and downs, have seen increases in most products, copper included.

Chile's currency and stock prices, as in most emerging economies, saw significant fluctuations in recent weeks. In the domestic fixed-income market, worth noting was the rise of short-term rates in line with expectations about the MPR. Meanwhile, longterm rates have had limited increases, smaller than those of their external peers, in a context where the country’s financial risk indicators remained contained. Domestic credit continues to be characterized by low interest rates and stronger growth in commercial loans. The Bank Credit Survey for the third quarter of 2018 showed less restrictions for granting loans to households and big companies and stronger demand in the different segments, especially households, big companies and real estate.

Mining activity had some setbacks owing to some specific factors in some mines. The other sectors evolved as foreseen in the September Monetary Policy Report. Investment, especially in machinery and equipment, continues to lead the increase in domestic spending. The good performance of durable consumption also stands out. The review of complementary sources of information on the labor market -including administrative records- indicates increased dynamism of employment and salaries than suggested by the surveys. 

September's inflation (0.3%) was slightly below projections, affected by one-off developments, such as lower food inflation. With this, annual CPI inflation rose to 3.1% and CPIEFE inflation rose to 2.1%, with a sustained acceleration of the more outputgap sensitive prices, such as the non-regulated services in the CPIEFE basket. Private expectations for inflation remain around 3% for December of this year and for one and two years ahead.

The Board's decision considered that capacity gaps have narrowed in recent quarters and will continue to do so in line with forecasts in the Monetary Policy Report, taking both headline and core inflation near 3% in the coming quarters. In this scenario, the Board believes that the monetary stimulus should begin to be reduced to ensure that inflation perspectives remain close to the target. Bearing in mind that, in the baseline scenario of the Report, the monetary policy rate will converge to its neutral level in 2020, a timely start of this process allows proceeding with graduality and caution. This will provide the necessary room for the Board to define the appropriate pace of the monetary stimulus withdrawal. Thus, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the twoyear horizon.


Tuesday September 04 2018
Chile Holds Interest Rate at 2.50%
Mario | mario@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on 4 September 2018, in line with market expectations. The decision was unanimous. Policymakers underscored that emerging market currencies have depreciated and growth prospects deteriorated in recent months, and showed concern over trade disputes between the United States and China. They also mentioned that inflationary risks have increased due to the peso’s further depreciation. Inflation rate in Chile rose to 2.7 percent year-on-year in July 2018 from 2.5 percent in the previous month. It was the highest inflation rate since April 2017.

Statement by the Central Bank of Chile:

The external scenario continues to be characterized by an increase in perceived risk in the emerging world, particularly for those economies seen as the most vulnerable. In recent weeks there has been a significant depreciation of emerging currencies, mixed movements in commodity prices, still negative capital flows and higher risk premiums. All this in a context where the divergence between monetary policies in the developed world persists and trade tensions between the United States and China have increased. Nonetheless, the outlook for global growth has limited corrections. In China, conjunctural economic activity figures have shown a sharper slowdown than predicted by the market, so the authority has activated several measures to boost demand.

In the local financial system, it is worth noting the further depreciation of the Chilean peso, which has been lower in multilateral terms. This has been in line with external developments, including the stronger US dollar at the global level, the fall in the copper price and intensified problems in some emerging economies.

Second-quarter activity and demand data showed a better than expected performance of the economy that has spread to more sectors. Faster growth in trade, manufacturing and some services stands out. On the expenditure side, strong dynamism of investment in machinery and equipment was observed again, plus higher private consumption and significant inventory build-up. Although the unemployment rate has increased, the labor market has begun to show some signs of recovery. In particular, private salaried employment grew at rates above 1% annually for the second consecutive moving quarter. Business (IMCE) and household (IPEC) expectations, despite a marginal drop, remain in positive territory, and financial conditions are still comfortable. The private expectations for economic growth (EES) continue to point to growth of the order of 4% for this year and the following two.

Annual CPI inflation rose to 2.7% in July, in line with expectations. As in June, its increase was mainly driven by greater annual variation of the more volatile components of the basket. Meanwhile, the annual increase of the CPIEFE remained at 1.9%, with goods inflation again in marginally negative figures and services just above 3%. Market expectations for inflation increased slightly at shorter terms. At one and two years they have stayed near 3%.

In its decision the Board considered that the analysis contained in the September Monetary Policy Report and data collected after its statistical cutoff, point to the evolution of macroeconomic conditions that make less necessary to maintain the current monetary stimulus. Economic growth has exceeded forecasts, thus reducing the activity gap faster and consolidating the prospects of an earlier convergence of inflation to the target. Given the medium-term implications of this scenario, the Board believes that the monetary stimulus should start being gradually withdrawn in the coming months. Likewise, it reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% in the two-year horizon.




Monday August 20 2018
Chile Annual GDP Growth Strongest in Near 6 Years
Banco Central de Chile | Luisa Carvalho | luisa.carvalho@tradingeconomics.com

The economy of Chile advanced 5.3 percent year-on-year in the second quarter of 2018, faster than an upwardly revised 4.3 percent expansion in the previous period and beating market consensus of a 4.0 percent rise. It was the strongest growth since the third quarter of 2012, as fixed investment, household spending and government spending increased sharply. Among economic activities, the manufacturing and trade sectors were the main contributors to growth.

Year-on-year, fixed investment rose strongly (7.1 percent vs 3.1 percent in Q1), boosted by investment in machinery and equipment (12.5 percent vs 5.2 percent) and investment in construction (4.0 percent vs 1.9 percent). Additionaly, household spending (4.2 percent vs 3.4 percent) and government spending (2.8 percent vs 1.5 percent) continued to grow. Meanwhile, net external demand contributed negatively to growth as imports jumped 10.0 percent (vs 6.1 percent in Q1), amid higher purchases of metallic products, machinery and equipment; fuels and chemicals. At the same time, exports advanced at a softer 7.5 percent (vs 7.1 percent), boosted by shipments of copper and manufactured products.

On the production side, output went up markedly in manufacturing (7.3 percent vs 3.2 percent), led by production of food (9.4 percent vs 4.5 percent), beverages & tobacco (13.6 percent vs 0.1 percent) and metallic products, machinery and equipment (8.0 percent vs 7.7 percent); as well as for internal trade (8.1 percent vs 6.0 percent). Faster growth was also recorded in: financial intermediation (4.4 percent vs 4.2 percent); business services (5.4 percent vs 3.3 percent); construction (4.6 percent vs 2.5 percent); fisheries (10.5 percent vs -6.5 percent) and agriculture (7.8 percent vs 1.2 percent). Meanwhile, activity slowed in mining and quarrying (4.8 percent vs 19.1 percent), as copper production rose less (4.7 percent 20.4 percent); utilities (5.0 percent vs 5.6 percent); restaurants & hotels (3.7 percent vs 4.6 percent); transport (4.8 percent vs 5.0 percent) and information and communication (4.0 percent vs 4.7 percent).

On a seasonally adjusted quarterly basis, the GDP expanded 0.7 percent, compared to a 1.2 percent rise in the first quarter of 2018.



Tuesday July 24 2018
Chile Keeps Interest Rate Unchanged at 2.50%
Mario | mario@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on 24 July 2018, in line with market expectations. The decision was unanimous. Policymakers underscored that emerging market currencies have depreciated in the recent months and showed concern over trade disputes between the United States and China. They also mentioned that inflationary risks have increased due to the peso’s further depreciation. The central bank expects to keep the monetary stimulus at its current level until inflation converges towards 3 percent. Inflation in Chile increased to 2.5 percent in June of 2018 from 2.0 percent in the previous month. It was the highest inflation rate since May of 2017.

Statement from the Central Bank of Chile:

Internationally, important developments have made the news since the June Monetary Policy Report. First, the difference between the US and other developed countries' cyclical position has deepened. The US economy shows narrowing gaps, especially in the labor market, with increasingly diverging activity and inflation figures from those of the Eurozone and Japan. This divergence has helped to strengthen the multilateral dollar. Second, there has been an increase in the risks associated with a scenario of trade conflict between the United States and other economies, in particular China. The entry into force of tariff increases for certain goods in the US and escalating announcements and statements by the various agents involved have affected markets, with generalized depreciations in the currencies of emerging and commodity exporting economies, a significant depreciation of the Yuan, and declines in commodity prices. Among these, it is worth noting the near 15% decline of the copper price since the June meeting. Notwithstanding, the world growth projections have not varied much.

The Chilean peso has depreciated in line with the multilateral dollar and the copper price. Also, stock market indices have fallen, following the trends of international markets. However, long-term interest rates have remained fairly stable, marking a difference with most economies.

Market interest rates are still low and real credit growth remains bounded, despite an increase in the commercial loan portfolio in recent months. At the same time, a somewhat stronger demand is perceived in the consumer and business segments, together with some relaxation in the conditions for mortgage lending and loans to large companies.

Figures for activity and demand after the June Monetary Policy Report show a more dynamic performance in investment-related lines, as reflected in the evolution of various items of wholesale trade, business services and the manufacturing industry. The machinery and equipment component continues to concentrate the greatest dynamism, which seems to be largely centered on the mining sector. On the other hand, housing and non-housing construction indicators show a deceleration in the margin and expectations in this sector have returned to pessimistic territory. Consumer confidence shows new advances (IPEC), but the labor market continues to lag behind activity while wages are growing slowly if compared with their historical averages. The GDP growth outlook (EES) for this year increased to 4% in July (3.8% in June), while for 2019 and 2020 it remains at 3.8%.

Year-on-year CPI inflation rose to 2.5% in June (2% in May), in line with forecasts and partly explained by increases in the annual variation in the more volatile components of the basket. The annual change in the CPIEFE rose to 1.9%, with goods inflation persisting in slightly negative numbers and services inflation somewhat above 3%. Market inflation expectations show no important changes, and remain near 3% at one and two years.

The Board’s decision considered that despite a more dynamic than expected behavior of the economy and a new upward correction to the short-term inflation outlook—mainly because of the exchange rate increase—the medium-term projections in the June Report are not changed. However, the risks surrounding the international scenario and related negative implications have risen. The Board foresees that the monetary policy rate will return to its neutral level within the next few quarters, in line with the working assumption used in the last Report. Accordingly, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.



Wednesday June 13 2018
Chile Keeps Interest Rate Steady at 2.50%
Mario | mario@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on 13 June 2018, in line with market expectations. The decision was unanimous. Policymakers underscored that emerging market currencies have depreciated in the recent months, and that prices of commodities have gone up. The central bank expects to keep the monetary stimulus at its current level until inflation converges towards 3 percent. The annual inflation rate in Chile increased to 2.0 percent in May of 2018 from 1.9 percent in the previous month.

Statement from the Central Bank of Chile:

The outlook for global growth shows no big changes and points to an expansion that on average will outperform that of the last three years. In the United States, data on prices, employment and wages suggest inflationary pressures have increased, as opposed to developments in Europe, where inflationary pressures appear more bounded. This has caused market expectations to anticipate a process of faster normalization of the US federal funds rate, and has sustained the strengthening of the dollar in multilateral terms. In its June meeting the Federal Reserve increased the policy rate for a second time this year. 

In this context, lower risk appetite has been observed, causing a depreciation of emerging economies’ currencies, and in several of them spreads and long-term interest rates have increased. In any case, the growth forecasts have not changed significantly and most short-term indicators are generally stable. Exceptions are some countries in Latin America where adjustments to financial conditions have combined with idiosyncratic factors, giving way to downward revisions to their growth projections. Such are the cases of Argentina and Brazil.

Regarding commodities, in recent days the copper price has risen significantly to near US$3.3 per pound. According to market reports, this rise would be transitory. 

Activity and demand prints published since the last Meeting confirm a sustained recovery of the economy. The higher figures for the first four months of the year reflected the low base of comparison twelve months ago, the improved performance of several investment-related activities and some durables, as well as supply factors that are considered transitory. The labor market continues to show a lagged behavior regarding activity, in particular because of weak creation of private salaried employment. In contrast, imports—of both consumer and capital goods—remain dynamic, business confidence (IMCE) and consumer confidence (IPEC) are at their best in several quarters, and financial conditions remain loose. In this context, compared with the last Meeting, the Economic Expectations Survey (EES) rose the expected growth for this year and next, in both cases to 3.8% (3.6% and 3.7% according to the April EES, respectively).

The annual inflation of the CPI remained around 2% and the CPIEFE at 1.6%. The inflationary dynamic is still determined by the evolution of the exchange rate, in an economy where capacity gaps remain and by indexation to lower inflation rates. With this, the annual variation of the CPIEFE for goods persists in slightly negative territory and for services remains close to 3%. Inflation expectations have increased at shorter terms, approaching 3% one year head, coinciding with the higher price of oil and the peso depreciation of recent months. Two years ahead they are still around 3%.

The Board’s decision considered that both the latest data and the analysis in June’s Monetary Policy Report point to decreased risks for inflation convergence. On the one hand, the recovery of the economy continues to consolidate and, on the other, perspectives for short term inflation have been revised upwards mainly due to the peso value of oil. Notwithstanding, CPIEFE inflation will have a similar path to the one forecasted in March in a line with an economy that still has capacity gaps. The Board foresees that the monetary stimulus will around its current levels and will start to decrease as macroeconomic conditions keep driving inflation convergence towards 3%. Thus, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year policy horizon. 


Friday May 18 2018
Chile Q1 Annual GDP Growth Strongest Since 2013
Banco Central de Chile | Luisa Carvalho | luisa.carvalho@tradingeconomics.com

The gross domestic product of Chile expanded 4.2 percent year-on-year in the first quarter of 2018, quickening from a 3.3 percent advance in the previous period and slightly above market expectations of a 4.0 percent growth. It was the fastest expansion since the third quarter of 2013, as household spending, fixed investment and exports rose significantly. Among economic activities, the mining sector was the main contributor to growth.

Year-on-year, household spending grew at a faster 3.9 percent, up from a 3.0 percent increase in Q4. Also, fixed investment continued to rise (3.6 percent from 2.7 percent), as construction investment rebounded (2.0 percent vs -1.7 percent) while that in machiney and investment slowed (6.5 percent vs 10.8 percent). Also, net external trade contributed positively to growth as exports jumped (7.2 percent vs 2.5 percent) and imports advanced at a softer pace (6.1 percent vs 5.2 percent). On the other hand, government spending increased less (2.7 percent vs 3.4 percent).

On the production side, output increased solidly in: mining and quarrying (19.3 percent vs 6.8 percent), boosted by both copper production (20.6 percent vs 7.9 percent) and other mining activities (8.4 percent vs -3.2 percent); internal trade (6.0 percent vs 4.7 percent); restaurants & hotels (3.6 percent vs 2.1 percent); transportation (4.9 percent vs 3.8 percent); financial services (4.1 percent vs 3.3 percent); business services (3.5 percent vs 1.2 percent); personal services (4.6 percent vs 4.1 percent) and utilities (5.7 percent vs 5.4 percent). Also, the construction sector rebounded sharply (3.2 percent vs -0.1 percent), posting the strongest gain since the third quarter of 2016 (3.6 percent). Conversely, production slowed in information and communication (3.1 percent vs 4.9 percent); real estate activities (2.2 percent vs 2.3 percent); manufacturing (2.8 percent vs 3.5 percent); while it shrank in agriculture (-2.3 percent vs -0.7 percent) and fishing (-6.5 percent vs 4.6 percent).

On a seasonally adjusted quarterly basis, the GDP expanded 1.2 percent, after an upwardly revised 0.7 percent rise in the fourth quarter and slightly above market expectations of a 1 percent growth.