Chile’s inflation rate rose to the highest this year in July as the Peso approaches its weakest level in more than a decade. Prices climbed 0.4% in the month, the National Statistics Institute said on its website Friday. Annual inflation accelerated to 4.6% from 4.4% the month before, while the central bank target is between 2% and 4%.
Chile which is heavily China-dependent with copper exports is suffering consequences of the slowdown in the world's second strongest economy.
Central bank President Rodrigo Vergara told La Tercera newspaper over the weekend that interest rate cuts are off the table because of the weakening Peso and faster inflation, even as economic growth remains sluggish.
The Chilean currency has tumbled 11% this year, keeping the inflation rate at or above the top end of the target range for the past 16 months. Core inflation, which excludes fruits and energy costs, rose 0.1% in July, the statistics agency said.
While inflation accelerates, inflation expectations two years ahead have remained anchored around the 3% targeted by the central bank. At the same time, economic growth remains weak.
Likewise with mineral prices down, copper-king Chile exports tumbled 17% to $5.23 billion in July from the year earlier, while imports slid 12% to $5.22 billion, the central bank said Friday. The trade surplus of 11 million dollars was the smallest since January of last year.
Finance Minister Rodrigo Valdes cut the 2015 growth forecast last month to 2.5% from 3.6% as poor growth figures in March, April and May indicated that eight interest rate cuts in the year through October and a jump in fiscal spending had failed to revive expansion.
The central bank has “room to adopt a wait-and-see attitude until the risks surrounding the economic recovery dissipate, given the well-anchored inflation expectations, the projected decline in headline inflation, and the downside risks to growth,” the International Monetary Fund said it its annual report on Chile released Thursday.