UPDATE 1-Chile inflation doubles forecasts in Oct, food pressures

Thu Nov 8, 2012 8:07am EST

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By Antonio De la Jara and Anthony Esposito

SANTIAGO Nov 8 (Reuters) - Chile's consumer prices rose by double what the market expected in October, chiefly due to the cost of food, non-alcoholic beverages, housing and electricity, the government said on Thursday.

The CPI index jumped 0.6 percent month on month in October, outpacing the 0.3 percent monthly increase that analysts polled by Reuters had forecast.

This follows another unexpectedly high 0.8 percent rise in September, a 0.2 percent increase in August and a flat reading in July.

"You're starting to have inflation that's more in line with the economy's reduced output gaps ... it better reflects the cyclical situation of the Chilean economy," said Alejandro Puente, chief economist at BBVA in Santiago.

"Looking forward, we clearly see more inflationary pressures, but with a lot of volatility in the short term," he added.

Finance Minister Felipe Larrain has often emphasized that Chile's robust economic growth, seen at around 5 percent this year, is coupled with moderate inflation.

Chile's small, export-dependent economy has been expanding at a brisk pace despite slowing demand from top trade partner China and fallout from the euro zone's ongoing fiscal crisis, helped by firm domestic demand, a tight labor market and relatively healthy prices for main export copper.

The minutes of the central bank's latest monetary policy meeting, released on Tuesday, highlighted "the strength of domestic demand, and in particular consumption."

Core inflation was 0.2 percent month on month in October, and inflation in the 12 months to October was 2.9 percent.

It was the fifth month in a row that annual inflation remained below the midpoint of the central bank's 3.0 percent policy horizon inflation target.

The central bank held its key interest rate steady at 5.0 percent as expected for a ninth consecutive month in October, as the buoyant domestic economy helped keep external risks at bay.

The key interest rate is seen staying at 5.0 percent in November and in the next three, six, 12 and 24 months, the bank's fortnightly poll of traders showed late last month.

BBVA's Puente also sees the central bank holding the key interest rate at 5.0 percent through the end of 2013, though he added there's a slight risk of a rate hike before that.

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