UPDATE 2-Chile inflation pace quickens in March, rates seen held in April

Tue Apr 8, 2014 8:31am EDT

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(Adds impact or interest rate expectations, analyst's comments)
    By Antonio De la Jara and Anthony Esposito
    SANTIAGO, April 8 (Reuters) - Chile's consumer price index
rose at its fastest pace in about 1-1/2 years in March, beating
expectations, government data showed on Tuesday, likely
prompting the central bank to pause its easing cycle and keep
its key rate on hold next week.
    An increase in prices of education, food, non-alcoholic
beverages, clothes and footwear lifted the CPI 0.8
percent in March, the government's INE statistics agency said.
    Faced with easing growth and cooling domestic demand,
especially in investment, the bank has cut the key interest rate
by 100 basis points to 4.0 percent since October in an attempt
to stimulate the economy. 
    But a stronger-than-expected 2.9 percent jump in economic
growth in February versus a year earlier, and a recent uptick in
inflation spurred by a weaker peso, may make rate easing more
challenging in the short term, analysts say.
    "The recent batch of leading indicators of activity has
been, on average, in line or slightly better than expected
whereas today's CPI print came above already-high expectations,"
said Tiago Severo, economist at Goldman Sachs.
    "Against this backdrop, we believe the monetary policy
committee is more likely to remain on hold in April, deferring
further easing for a couple of months," he added.
    Inflation in the 12 months to March was 3.5 percent, in the
upper half of the central bank's 2 percent to 4 percent targeted
range.
    In its latest assessment of Chile's economy, the quarterly
Monetary Policy Report published on March 31, the central bank
said inflation will temporarily increase to the high-end of its
tolerance range but would drop to about 3 percent by the end of
2014 
    The peso currency 's depreciation has made some
imported goods like fuel more expensive in recent months,
causing a bump in inflation.
    So far this year, the peso has weakened 4.7 percent versus
the U.S. dollar, following a 9.01 percent slump in 2013.
    Core inflation, which doesn't include fruit, fresh
vegetables or fuel, was 0.7 percent in the month, the INE said.

 (Writing by Anthony Esposito; Editing by Bernadette Baum)
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