Reality check
The Central Bank's early-year optimism is losing steam. After progress in January and February, the next three consecutive IMACEC readings showed a negative trend. The overall negative effect of the IMACEC is particularly evident in the industrial sector. While the manufacturing sector declines, other indicators point to sluggish consumption. The outlook for investment isn't much brighter. The marginal weakness of activity, along with the base effect, supports our baseline scenario of just 2% growth for 2024.
Data for the March-May rolling quarter highlighted a slower pace of job creation compared to previous months. Unemployment remains high despite recent gains, with uneven employment growth across sectors. Congruent with the weakness in the labor market, real wages remain stagnant.
The first effects of the normalization process of electricity tariffs were, surprisingly, captured by the June CPI. Beyond the effect of electricity, June CPI surprised to the downside. However, the 12-month variation rose from 3.4% to 3.8%, the highest since November 2023. By contrast, various core inflation measures continued normalizing. A key takeaway from the last Central Bank Monetary Policy Report (IPOM) is the significant increase in CPI projections, due to adjustments in electricity tariff assumptions. Our current baseline scenario is that inflation will stand at 4.7% in December 2024, and 3.6% in December 2025.
At its latest Monetary Policy Meeting (June 18th), the Board of the Central Bank of Chile cut the policy rate by 25 bps. Notably, the IPOM published the day after the meeting included several hawkish signals. The minutes from the June 18th meeting confirmed that the BCCH's baseline scenario is for the last 25bp TPM cut of the year to occur in July. The minutes also reveal that the BCCH's Board is open to deviating from the IPOM baseline scenario. Our view is that the IPOM's baseline scenario for the TPM is a bit too hawkish.
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