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JPMorgan Says March Inflation Data Hurt The Central Bank

CHILE
  • March inflation hurt the central bank, which decided to convey a dovish-toned forward guidance just days beforehand. Likely, it will also hurt the new administration’s fiscal strategy amid mounting political pressures for more fiscal concessions and resources to assuage the impact of unleashed consumer prices on households’ disposable income.
  • Inflation may also infuse additional momentum on those lawmakers calling for a new pension fund withdrawal, despite the 1.2% of GDP fiscal package and 14% minimum wage increase announced last week.
  • Finally, inflation may also prove a catalyst to exacerbate the competition in between the Constitutional Convention and the Congress.
  • These dimensions, in a stylized manner, are the main vectors defining the uncertainty space.
  • The March upside surprise prompts a revision higher of Dec-22 inflation forecast to 7.4%oya, from 6.8%. JPM also tweak higher Dec-23 inflation to 4.2%oya on persistency stemming from de facto indexation to past inflation (about 11% of the CPI basket).
  • In terms of monetary policy, JPM now expect a 100bp hike in May, and maintain for the time being the terminal rate at 8.5%. In line with the aforementioned discussion, policy and institutional decisions in the coming weeks are to determine whether the terminal rate is consistent with an eventual convergence of inflation expectations back to the 3% target, or whether we are facing a regime change.
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