Central Bank of Chile says inflation has not been consolidated

The Central Bank of Chile said there was no evidence that the domestic inflation slowdown had been consolidated, even as the headline consumer price and consumption readings head in the right direction.

The only possible monetary policy option was to keep rates steady at an over two-decade high of 11.25%, Central Bankers wrote in the minutes to their May 12 decision. The risks associated with scenarios of increased inflationary pressures were particularly complex and costly, they said.

The board agreed that total inflation fell and activity and consumption continued to adjust, but did not indicate that the inflationary problem had been resolved, they wrote in the document published on Monday. Information was gathered to assess whether the convergence of inflation to the 3% target had been consolidated. Policymakers are sticking to their cautious stance on rates as both headline inflation and closely watched core gauges continue to run well above the 3% target. Investors expect easing to begin in recent months on bets that activity and price pressures are cooling. The monetary authority's decision to raise capital requirements last week fanned speculation that borrowing cost cuts may be imminent.

The national statistics institute said annual inflation slid back into single digits for the first time in 13 months in April. Consumer prices excluding volatile items rose 10.3%, compared with a year earlier.

The GDP of Chile grew 0.8% in the first quarter from the previous three-month period, below the 1% forecast by analysts in a Bloomberg survey. Services such as hospitality and restaurants saw activity rise, while mining weighed on results.

In the minutes, the board members wrote that economic readings were in line with their forecasts. It was pointed out that this was a good news, especially after several quarters in which this had not been the trend.

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