MercoPress. South Atlantic News Agency

Chilean inflation anticipates higher interest rates

Chile registered an unexpected 0,6% surge in July's consumer price index accumulating 2,4% in the first seven months of 2005 and 3,1% in the last twelve months, according to the latest report from Chile's Statistics Institute.

The items with most impact were, Transport 1,5%; Housing 0,8%; Health 0,7%; Food 0,6% and Housing equipment 0,1%. Clothing actually decreased 0,8%, confirming a contraction trend which in the last five years accumulates 16,4%.

Fuel on the other hand for energy dependent Chile is proving ever more challenging, in July prices jumped 3,4% and 11,1% in the last twelve months.

Transable goods in July expanded 0,8% and non Transable goods 0,5%, totalling 2,7 and 3,3% in the first seven months of 2005.

Consumer price index excluding fresh fruit and vegetables and fuel was 0,4% in July and 2,4% in the last twelve months.

Analysts were expecting a more modest consumer price index for July, 0,2/0,3%, that is below June's 0,4% over May. In June, Housing, Fuel and public utility services caused the main impact.

July's increase was the highest since July 1997 but the overall index is still on target, 2,8% for the twelve months, in a range between 2 and 4%.

However given the latest index analysts forecast that the Chilean Central Bank will be raising the basic reference rate by 25 points to 3,75% from 3,50%.

"Given July's index and inflation in the previous months, I believe the Central Bank could speed the normalization trend of interest rates to keep growth on a healthy track", said Joseph Ramos Dean of the Economics School from the University of Chile.

The Chilean economy is forecasted to expand between 5,5 and 6% both this year and in 2006.

The evolution of wholesale prices also seems to confirm analysts estimate of a further increase in the basic reference rate by the Central Bank next week.

Wholesale prices in July jumped 1,2%, accumulating 7,1% in 2005 and 5,1% in the last twelve months.

Domestic produced goods averaged a 1,2% increase and imported goods 1,4%. Among domestic products, industrial goods increased 1,6% but fisheries dropped 2,5%. Among imported goods, minerals (hydrocarbons) jumped 13,1%.