Volatility and divergence
Economic activity has been characterized by significant volatility, and uneven performance across sectors. Data related to consumption, including commerce, services and taxes on products, remain largely stagnant. Investment-related data also reveal limited dynamism. But manufacturing experienced two consecutive months of growth. Mining has been a crucial driver of economic growth in recent months. The 12-month accumulated trade surplus continued to rise, due to the expansion in foreign sales, primarily driven by the mining sector, and declining imports, driven by weak domestic demand.
Chile’s labor market continues to face significant headwinds. The unemployment rate rose to 8.9% in the June-August moving quarter, extending its upward trend. The 12-month variation in employment stood at 2.5% during the June-August moving quarter, its lowest since the August-October moving quarter of 2023. Despite these challenges in employment, in August real wages continued to rise, although more slowly.
September’s CPI (0.09% m/m) marked the largest downside surprise since March. The y/y rate fell from 4.6% to 4%. For both the IPCSV and IPCSAE, the 12-month variation rose for the third consecutive month. Nevertheless, in the margin core measures, and the relative inflation between goods and services, suggest that inflation remains controlled at the margin. Beyond one-time shocks, we do not see significant inflationary or deflationary pressures.
As widely expected, the Central Bank of Chile (BCCH) once again reduced the Monetary Policy Rate (TPM) by 25 basis points. In our view, October's rate cut, along with the accompanying communiqué, suggests that the BCCH is inclined to front-load rate reductions. The communiqué appears to rationalize the decision almost as if justifying a decision to hold the rate steady. While the communiqué suggests that successive 25 bp cuts are likely in upcoming meetings, a 50 bp cut cannot be ruled out. As the policy rate approaches its neutral level, the likelihood of pauses increases.
Now read on...
Register to sample a report