Excerpts from the statement of the Central Bank of Chile:
Activity indicators for the fourth quarter of 2017 are somewhat better than expected in the baseline scenario of December’s Monetary Policy Report, with important surprises in some sectors associated with investment, which slightly outperformed the Banks’ estimates. Consumption maintains the trend of previous months, with stronger growth in sales of durable goods, particularly automobiles. Annual growth in non-durable consumption is rather sluggish, but has picked up in recent months. The wage bill, growing at a pace close to 3.5%, continues to sustain the expansion of consumption. Mining and industrial exports ended the year with significant growth rates in terms of both value and volume, reversing the trend of previous quarters. Salaried employment has increased its annual variation rate, reflecting growth in public hiring. The unemployment rate declined in its latest print, but remains above year-ago levels. Annual growth in nominal and real wages is fairly unchanged at levels around 4.5% and 2.5%, respectively. In this context, private growth expectations increased, as did confidence indicators.
Inflation has brought no big surprises and remains around 2% annually for both headline and core CPI (CPIEFE). Its evolution continues to reflect the impact of the exchange rate drop over the last few months, the poor dynamism of activity and the effects of some particular shocks. The annual variation of the goods CPIEFE is around 0% and the services index variation is close to 3%. Among the more volatile prices, fruits and vegetables went back to slightly positive annual growth. Inflation expectations had limited movements. While in the short term they have been adjusted downward somewhat, at two years they show no change with respect to the previous Meeting.
The Board’s decision estimates that incoming data is consistent with the baseline scenario of December’s Report. At the same time, some of the risks identified therein have diminished. In particular, the latest activity figures make it more likely that the economy will achieve the expected traction, while domestic financial conditions remain favorable. Thus, despite inflation expected to be somewhat below previous forecasts for some months, mainly due to the evolution of the exchange rate, the threats to its convergence to 3% have been attenuated in the margin. In this context, the Board considers that the general orientation of monetary policy outlined in the Monetary Policy Report is still adequate. That is, a monetary impulse that will remain fairly unchanged, and that withdrawal will only begin once the closing of the gaps is consolidated.
In any case, the Board will pay special attention to any signs of a delay in the convergence of inflation that might warrant an additional monetary impulse. It also reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.