MercoPress. South Atlantic News Agency

Chilean inflation below target; economy heading for recession

Finance minister Velasco: “We always said the first half of the year would be the hardest”.

Chile's consumer price index fell a bigger-than-expected 0.3% in May after a fall of 0.2% in April, the National Statistics Institute reported on Friday.
On an annual basis, inflation for the 12 months through May slowed to 3%, the Central Bank's target rate -- from 4.5% for the year through April. In the first five months of 2009, inflation is down to minus 1.1%.

Most items in May were down, Health, -2.6%; Entertainment and Culture, -1,2%; Clothing and footwear, -1.2% while slight increases were registered in Transport, 0.2% and Food and Beverage, 0.2% .

The core consumer price index, which strips out fuel, fresh fruit and vegetable costs, fell 0.3% in May and was up 4.4% in the 12 months through May.

In April, core CPI fell 0.2%. It rose 5.5% in the year to April.

However in spite of the good inflation data, Chile’s economy again contracted in April at its fastest annual rate in a decade.

Chile's economic activity index, the IMACEC, fell 4.6% in April compared with a year earlier, the Central Bank said.

The drop marked the sixth straight monthly fall in the IMACEC, as gauged in year-on-year comparisons. On that basis, it was also the steepest fall since April 1999.

“We always said the first half of the year would be the hardest,” Finance Minister Andres Velasco told reporters. “It is a difficult time. There are complicated factors, but also some encouraging signs,” he said, referring to the price data.

The monthly gauge IMACEC measures more than 90% of the components comprising Chile's GDP. Seasonally adjusted it fell 0.7% in April from March. In March it fell 0.1%, revised from a 0.2% gain.

The data puts Chile on course to formally enter recession by the government's measure of two consecutive quarterly year-on-year contractions.

Chile's GDP contracted 2.1% in the first quarter compared with a year earlier, and the Central bank this month slashed its 2009 GDP forecast to a range between a 0.75% contraction and a 0.25% expansion.

Chilean industrial output fell for a seventh straight month, copper output declined for a 10th month and the jobless rate hit a near 4-year high, the government said last week.

Industrial production slid 11.1% in April compared with the same month a year earlier, accelerating its pace of decline after a 7.1% fall in March.