Chile's inflation elevated above target but unlikely to rise

In terms of spending categories, the deceleration in inflation in September was led by food and transport components. Inflation is expected to moderate further in October to 4.4% yoy while core inflation could also slide two notches to 5.2% (0.5% mom) as growth weakness slowly gains the upper hand over currency depreciation in determining inflation at this point of time. 

"We currently forecast inflation at 4.4% and 3.6% for 2015 and 2016", says Societe Generale.

Given the significant pass-through from currency depreciation and the stronger-than-expected labour market, the central bank does not see inflation moderating to its target during the policy horizon despite significantly weaker economic growth. However, although inflation could stay above 4% near term, it is less likely to increase from current levels on average. The downside risks to the inflation forecasts relate to additional growth weakness leading to a deterioration in the labour market and wages.