MercoPress. South Atlantic News Agency

Chile cuts taxes to fight highest inflation in decade

Chile's consumer price index rose 0.8% in March, up from 0.4% in February, according to the latest release from the country's National Statistics Institute (INE). The March figure pushed 12-month inflation to 8.5%, up from the February 8.1%.

In the last 12 months, the annual rate has more than tripled and at 8.5% is the fastest since 1996. Soaring food and education costs boosted the March index: food and beverage prices rose 2.2% and education and recreation surged 3.7%. However the March index was lower than that expected by market analysts who were anticipating on average 1.2%. The Chilean Finance Ministry last month pushed through a 900 million US dollars package of tax breaks and economic stimulus measures aimed at shaving 0.5 percentage points from inflation. The package is in addition to 200 million US dollars added to a fuel stabilization fund to cut the price of gasoline. Chilean officials said the government remains concerned about inflation but is confident that with the latest decisions the situation can be contained. "Thanks to the government's efforts on matters like gasoline, stamp duty, fuel and the subsidies set up for people of lower income, we today see a rise (in inflation) that is less than the market expected'' Finance Under Secretary Maria Olivia Recart told reporters in Santiago. "The situation is slightly more controlled today, but one still has to be worried", she added. Chilean Central Bank president Jose de Gregorio admitted that the Chilean peso, which has risen 13% against the US dollar this year, has helped to slow inflation. The peso had its biggest quarterly gain since 1981 in the January-through-March period, rising 14% and closed at a decade high of 429.55 per dollar on March 11. De Gregorio also said that commodity-driven inflation poses the biggest threat to emerging market countries. Commodity price rises have pushed inflation "way above" target, De Gregorio said at a recent meeting of Latin American bank executives sponsored by the Institute of International Finance. "Both theory and empirical evidence indicate that inflation damages economic growth'' De Gregorio said. "The best contribution that monetary policy can make to a country's long-term growth is to keep inflation low and stable". In spite of the boom in exports and metal prices, Chile's economic activity expanded 3.4% in the year to February, according to data from the central bank, slowing for the third consecutive month. The latest package of measures is expected to have a positive down impact on April's inflation.