Chile inflation rises again on peso depreciation

A fresh round of substantial peso depreciation has stopped Chile inflation moderation and, in fact, inflation returned to 5% yoy in August (with core inflation remaining more stubborn). 

"Given the pressure on the CLP and a stronger-than-expected labour market, it is unlikely that inflation will fall substantially despite growth weakness , raising upside risks to the inflation forecasts for 2015 and 2016", says Societe Generale. 

Accordingly, year-ahead inflation expectations have also moved up in recent months although the medium and longer term inflation trajectory remains conducive for the current monetary policy stance.

"That said, peso depreciation alone might not be enough to exert continued pressure on inflation beyond 2016. The downside risks to our inflation forecasts relate to further weakness in the economy leading to the deterioration in the labour market and wage growth", added Societe Generale.