* 12-month CPI 1.5 percent, well under central bank's 2-4 percent range
* Lower food, beverage prices help ease December CPI
* Higher housing, water, electricity, gas prices offset drops
By Anthony Esposito and Antonio De la Jara
SANTIAGO, Jan 8 Chile's consumer price index was flat in December, slightly below market expectations, as lower food and non-alcoholic beverage prices offset increases in the housing, water, electricity and gas sectors, the government said on Tuesday.
Inflation in the 12 months to December was 1.5 percent, well below the central bank's target range of 2 percent to 4 percent and the lowest rate since at least December 2011, according to the INE government statistics agency.
Banchile Inversiones brokerage said in a note to clients that despite the low annual inflation figures, data on economic activity suggests higher inflationary pressures.
"We therefore expect the central bank to hold (interest) rates at 5 percent again at its Jan. 17 meeting," the brokerage said.
The central bank has kept rates steady since a surprise cut in January 2012 as it weighs external risks against a buoyant domestic economy.
Thanks to robust domestic demand and investment, Chile's small, export-dependent economy has mostly fared better than expected despite slowing demand from top trade partner China and fallout from the euro zone crisis.
The Andean country's economy is believed to have expanded roughly 5.5 percent last year, according to government projections.
"This is the biggest difference between growth and inflation we've had in at least a half century," Finance Minister Felipe Larrain said later on Tuesday. "We've searched back to 1960 and there's no year in which growth tops inflation by so much in percentage terms."
December's CPI follows an unexpected 0.5 percent decrease in November, a surprisingly high 0.6 percent rise in October, and a stronger-than-expected 0.8 percent increase in September.
Traders polled by the central bank had forecast 0.1 percent inflation in December.
Core inflation was 0.3 percent in December, the INE said.
Chile's robust economic growth beat expectations again in November on an uptick in services, mining and retail, while the trade surplus widened in December to the biggest in more than a year, the central bank said on Monday.
The bank is expected to keep interest rates steady at 5 percent over the next six months, although it may raise them slightly earlier than previously thought, the bank's fortnightly poll of traders suggested late last month.