The Chilean consumer price index showed no variation in July in contrast to the surprise 0.3% drop in June, as increases in food and non-alcoholic drinks offset falls in clothing, footwear and utilities, according to the national statistics agency INE.
Inflation in the 12 months to July slowed to 2.5%, approaching the floor of the central bank's 2% to 4% tolerance range. Core CPI rose 0.1% in July after coming in unchanged in June.
The central bank's latest fortnightly survey of traders showed the market expects a median 0.2% rise in consumer prices in August.
But analysts forecast that despite easing inflationary pressures firm domestic demand and a tight labour market suggest the central bank will keep its key interest rate on hold at its August 16 policy meeting.
The central bank is seen holding the rate at 5% in August and in three months time, but is then seen cutting it to 4.75% within six months, the bank's fortnightly poll of traders showed on Wednesday.
The bank's previous fortnightly poll published on July 25 had forecast rates would be at 4.75% within three months and at 4.5% in six months.
Chile slipped into a trade deficit in July as copper export revenues in the world’s leading producer fell, and Central Bank President Rodrigo Vergara on Tuesday forecast an economic slowdown in the second half and hinted interest rates would remain stable.
On Monday it was announced that the central bank's IMACEC indicator of economic activity rose 6.2% in June versus a year earlier, stepping up its pace from a 5.3% expansion in May from the year-earlier month. The IMACEC in May also rose 0.4% versus April