MercoPress. South Atlantic News Agency

Unexpected bumpy performance of economy

Chile's Consumer Price Index increased 0.3% in August, with inflation in the last twelve months reaching 3.8% and in the first eight months of this year 2.9%, in line with the government's targets, according to the latest release from the country's National Statistics Institute, INE.

However the good inflation percentages were overshadowed by the overall annualized growth rate of the Chilean economy during July which was 4.2%, well below market expectations (4.7%) for the second month running.

Transport and Housing are the items with the highest increases, 9.3% and 6.5% boosted mostly by the hike in energy prices and public utility rates. Food on the other hand contracted 0.2%. In August 2005 Food actually rose 2.5% and Transport 5.9%. In August 2006 as well as in July 2006, gasoline, liquid gas and electricity jumped over 2%. Fuels prices in the last twelve months in Chile have accumulated 13.9%.

As to the core CPI, which excludes fuel and food, August experienced a 0.1% increase and 3.1% in the last twelve months shows the INE release. On the other hand Producer prices index in August jumped 0.8%, in the first eight months of the year 19.2% and 22.8% in the last twelve months.

The salaries index marked a 0.4% increase in July totalling 2.8% in the first seven months.

"We're not satisfied with the July growth figure", admitted Finance Minister Andres Velasco.

As happened in June, manufacturing, retail and construction were below expectations and imports which in June expanded at a 20% rate dropped to an 8.3% in July.

Manufacturing was 1.9% up from July 2005; construction was down 18.3% from a year ago and retailing expanded 2.8%, two points less than in June.

"The modest performance of the Chilean economy in July has been caused by a weakening of all sectors, with the exception of mining influenced mainly by the 9.1% expansion in copper production", reported the Chilean National Chamber of Commerce.

The below-expectations performance of the Chilean economy had led the Central Bank to decide a pause in monetary policy and sustained basic rate increase which now stands at 5.25%.

Earlier in the year the Chilean economy growth for 2006 was forecasted in the range of 5 to 6%, compared to 6.3% last year. However the latest estimates, following on the June/July trend believe the increase will be closer to 4 to 5%.

Some of the risk factors which lie ahead, according to the Chilean Central Bank, include an increase in government spending next year; sustained high energy prices; restrictions in natural gas supply from Argentina and price surprises, and possible external shocks.