Chile inflation drop puts pressure for rate hike

Chile's inflation rate dropped while core inflation remains high in November. This situation puts more pressure on the central bank to raise rates. The economic growth continued to be sluggish in October. The inflation rate is expected to be over four percent soon.

The weaker currency Peso is also taking a toll on the economy. Chile's GDP growth rate was below the forecast. Chile's central bank may hike rate in December or January.

The inflation rate dropped within the expected range in November for the first time in 20 months. Consumer prices up 3.9 percent, according to the latest data from National Statistics Institute. However prices were flat in the month, said the institute.

The average estimate of 14 analysts in a poll by Bloomberg was four percent for the month. Analysts opine that the latest drop was a transitory decline as it's a one-time effect. The inflation will be back above four percent in the forthcoming quarters.

Chile's central bank forecasts that inflation rate wouldn't skid below four percent until the second half of 2016. Core prices excluding food and energy costs rose 0.2 percent in November and it was 4.7 percent in the previous corresponding month.

Chile's inflation rate in November was 3.9 percent and forecast for December is at 3.6683. The inflation rate is forecast to be 3.511 in March 2016, according to data by IEconomics. The core inflation rate is predicted to be 4.7896 for March 2016, 4.938 for December 2015 while the latest one is 5.1 percent.

The continuous drop in peso value is also affecting the inflation. According to Chile's central bank, the gross domestic product (GDP) rose 1.5 percent in October, but below the 1.7 percent of the average forecast made by economists in the Bloomberg's survey. This 1.5 percent GDP growth rate was the third slowest rate in 2015.

The current consumer price index (CPI) stands at 110.86 and it's forecast to be 111 for December 2015 and 111.82 for March 2016 as per inflation.eu, which tracks worldwide inflation data. Another key parameter for measuring economy is housing index. The Chile's housing index stands at 166.4 and it's predicted to be 168.93 for December 2015 and 169.61 for March 2016.

Chile's central bank President Rodrigo Vergara said: "We will continue giving monetary stimulus, but it will be less than now, that means higher interest rates in the short-term."

In September, the central bank said it would be two or three rate hikes and that scenario hasn't changed.