February CPI and monetary policy implications

CHILE - In Brief 14 Mar 2024 by Igal Magendzo

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The second CPI under the newly-designed basket surprised on the upside again, confirming that the new basket inherited the old basket’s volatility. Some of the problem might be attributed to the volatility of the exchange rate and international prices, but this would only affect a limited part of the basket. There are clear methodological issues that the Institute of Statistics, currently busy with the ongoing Census, must address. The monthly increase of 0.59% was the highest for a February since 2003 and far exceeded the 0.08% implied by FW CLP/UF curve. The 12-month variation (splice series) rose for the first time since November 2022, from 3.2% to 3.6%, still within the Central Bank's target range. However, we take the data with a grain of salt and think that its information content is rather limited. Unlike in January, the upward surprise was not broad-based. Three items account for almost most of the error in the forecast. First, the price of a new product, “International Air Transport” (the former “Air Transport” was split in two: international and national), which far from falling in line with its supposed seasonality, had a monthly increase of 19.4%. Second, for home rentals (the product with the largest weight in the basket) the INE reported a record monthly increase of 1.72%. However, even after this increase, it remains 4% behind total CPI (proxy for the price in UF) since the arrival of the pandemic. Third, the price of the new product "Subscription to Audiovisual Content", which increased by 9.2% MOM. The ex-volatiles CPI (IPC-SV), which excludes air transport, among other products, showed a monthly increase of 0.61%, which drops to 0.34% if we exclude bo...