December 7, 2012 / 3:45 PM / in 5 years

WRAPUP 1-Surprise Chile CPI drop gives monetary policy a breather

* Key interest rate seen holding at 5 percent in coming
    * CPI surprisingly fell 0.5 percent in November
    * Consumer price fall is steepest monthly decline in 3 years
    * Inflation in 12 months to November is 2.1 percent
    * Chile has first trade surplus after four monthly deficits

    By Antonio De la Jara and Anthony Esposito and Felipe
    SANTIAGO, Dec 7 (Reuters) - Chile's consumer price index
unexpectedly fell 0.5 percent in November, far below market
expectations, prompting Finance Minister Felipe Larrain to say
on Friday it allows for "tranquility" in terms of monetary
    The key interest rate has stayed on hold at 5.0
percent since a cut in January largely because the world's No. 1
copper producer has shown better-than-expected resilience to
slowing demand from top trade partner China and fallout from the
euro zone's crisis.
    "We have a particularly positive situation and I think that
allows for more tranquility in terms of monetary policy,"
Larrain told reporters after the monthly CPI posted
its steepest decline in three years.
    The CPI dropped chiefly due to lower prices for transport,
food and non-alcoholic beverages, the INE statistics agency
reported earlier Friday.
    November's tumble in consumer price was steeper than
forecast by all of the 11 analysts and economists surveyed in a
Reuters poll. The range of their estimates went from a fall of
0.3 percent to an increase of 0.4 percent, with the median
estimate at zero. 
   Easing inflation comes as a relief for the bank after a
surprisingly high 0.6 percent rise in October CPI and
stronger-than-expected 0.8 percent increase in September, which
were fueled in part by robust domestic demand. 
    "This drop in the monthly CPI confirms the central bank's
neutral monetary policy stance and makes an interest rate hike
more unlikely for now," said Hernan Jimenez, analyst at Forex
Chile in Santiago.
     Worldwide, standard monetary policy is for a central bank
to raise interest rates to cool inflation but lower them to spur
economic growth, if the latter takes priority over inflationary
     Chile's central bank is seen holding its rates at 5.0
percent again at its monetary policy meeting on Dec. 13, and it
is seen at that level in three and six months, the bank's last
fortnightly poll of traders showed. 
    Strong domestic demand and investments have also boosted
Chile's economic growth. Larrain said on Wednesday he expected
the small, export-dependent economy to expand about 5.5 percent
this year, adding he doesn't see it overheating. 

    Core inflation, which excludes fruits, fresh vegetables and
fuel, was minus 0.2 percent in November, the biggest decline
since a 0.2 percent decline in August. In October the core CPI
rose 0.2 percent.
    Overall, consumer prices rose 2.1 percent in the 12 months
to November, well below the 3.0 percent midpoint of the central
bank's policy inflation target range.
    Annual inflation will likely end the year around 2 percent,
Larrain said, echoing central bank president Rodrigo Vergara's
comments in an interview with local newspaper El Mercurio
published on Sunday. 
    Nearby, Brazil's inflation accelerated more than expected in
November after transportation and electricity prices spiked,
suggesting the central bank ran out of leeway to further cut
borrowing costs.    
    Chile posted its first monthly trade surplus in November
after four consecutive deficits, as lower imports countered a
drop in key copper export revenue, central bank data also showed
on Friday.
    The surplus grew to $562 million in November
after a downwardly revised $411 million deficit in October and
$287 million surplus in November 2011, according to central bank
data. The bank had previously reported a $70 million surplus for
    Exports totaled about $6.674 billion in November, while
imports were about $6.112 billion. Both figures were down
compared with October and November 2011.
    "The external situation is affecting us and that is
reflected in exports. The value (of exports) have fallen in some
cases because export prices have dropped, but volumes have as
well," Larrain said.
    Exports are closely monitored in Chile, which is largely
dependent on sales of copper, wood pulp, fruit and salmon.
    Chile accumulated a $2.702 billion trade surplus in the
January to November period, central bank data showed. The
country ended 2011 with a $10.792 billion surplus.
    Chile's copper export revenue totaled $3.859
billion in November, versus a previously reported $4.440 billion
in October, the central bank said.
    Export revenue from the metal was $3.712 billion in November
of last year. 
    Copper prices rose to their highest level in more
than five weeks in late November, supported by a weak dollar and
growing confidence in the economic outlook for top consumer
    Chile, which produces roughly a third of the world's copper,
is struggling with stubbornly dwindling ore grades in many of
its aging, tired deposits though new and expanded deposits have
helped increase output this year.
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