Chile’s inflation likely decelerated slightly in February

Chile's inflation in January had accelerated slightly from December to 4.8% y/y. The acceleration was mainly because of certain changes in the administrative charges made by the government. In the coming months, this one-off change might acceleration.

"We expect inflation to edge down slightly to 4.7% yoy (0.3% mom) in February despite a likely acceleration in major categories - food, transport and housing. Core inflation is also expected to moderate slightly to 0.5% mom (0.7% mom previously). We currently forecast 2016 headline inflation at 4.2%", says Societe Generale.

However, with the considerable pass-through from the depreciation of the currency and the strong labor market, there are certain risks on the upside to the projection, particularly in the near term. But a lack of growth momentum is likely to ultimately weaken the labor market, which will help ease wage growth and inflation. The BCCh, during its February's meeting, mentioned that lower medium-term inflation pressures stem from a sluggish economic outlook and recent moderation of wages and its likely impact on services.

This indicates that the central bank is more worried regarding growing global uncertainties rather than inflation. This suggests that the future hike in interest rates will be limited.

"Our current forecast is for the overnight rate to peak at 4.00% in H1 16", says Societe Generale.