MercoPress. South Atlantic News Agency

Chile’s May inflation on target but government fears external risks

Central Bank President Vergara admits preparing for a Euro fall out and slower economic activity in China

Chile's consumer price index remained unchanged in May, the government statistics agency INE said on Friday, slowing its pace from April as lower food and transport prices offset higher electricity costs. Prices rose 0.1% in April, the INE said last month.

Chilean Central Bank President Rodrigo Vergara said this week short-term inflation risks had eased but medium-term risks remained, and stressed the bank was maintaining its neutral monetary policy bias.

He also said external risks currently outweigh domestic ones.

The central bank is no longer seen raising its key interest rate by year-end and the rate is now seen steady at its current level in December and in mid-2013, the bank's latest fortnightly poll of traders said.

The previous fortnightly poll had forecast the rate would rise to 5.25% in 6 months.

Core CPI rose 0.3% in May and inflation in the 12 months to May slowed to 3.1% almost on the bank's policy horizon target and well below the 4.0% ceiling of the central bank's tolerance range.

“This is good news which makes it easier on the pockets of all Chileans,” Finance Minister Felipe Larrain told reporters, citing lower food and transport costs.

Chile's peso was unmoved by the inflation data, moving lower instead with weaker global markets and a sharp fall in prices of Chile's main export, copper.

However yields on central bank bonds rose following the data, traders said.

Chile, the world's leading copper producer has been expecting a slowdown in demand globally and especially from China, the world's leading consumer of the metal, and is preparing for a fallout from the Euro zone crisis.

The economy is already feeling the impact of global financial turbulence via lower international copper prices, but it should still grow by 4.0% or more this year, President Sebastian Piñera insisted on Friday.

Chile posted its first monthly trade deficit in nearly a year in May, the central bank said on Thursday, in a sign fallout from Europe's escalating crisis and moderating growth in the country’s top trade partner China.

The trade deficit of 152 million dollars in May, a sharp reversal from April's 1.047 billion surplus and from May 2011 surplus of 1.417 billion, the central bank said.

It was the first monthly trade deficit since August, according to central bank data. Exports totalled about 6.514 billion in May, while imports were 6.667 billion.