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Santander See November CPI Print Key To Evaluation Of 2023 Cuts

CHILE
  • The economic data released last week confirmed the adjustment that the economy is undergoing after the overheating of 2021. Non-mining activity fell 0.4% compared to September, confirming the downward trend exhibited by the economy since the second quarter. Labor data also showed weakness. Job creation was moderate, and was exclusively associated with new informal jobs. Formal employment continued to be destroyed, and labor participation remained stagnant.
  • In this context, inflation expectations and market interest rates have continued to be adjusted downward. The Survey of Financial Operators (EOF) confirmed a significant reduction in the two-year inflation outlook, standing below 4% for the first time since January, and pointed to a rate cut process that would begin in April next year.
  • Following this week’s BCCh decision, the CPI figure for November will be released, for which Santander estimate a variation of 0.6% m/m and 12.9% y/y. Although this figure is still high, it reflects the relative moderation of international prices, less tight financial conditions and less economic activity, which, added to inflationary prospects that tend to converge to the target, would lead to a gradual reduction in prices next year.
  • This scenario will be part of the December IPoM, which would begin to outline a change in the monetary strategy with rate cuts in the following meetings. In particular, if inflation does not cause a substantial surprise and activity continues with the normalization process as it has shown up to now, it is probable that the Council will evaluate a first monetary easing in January of next year. If this reduction is not made, a very significant reduction would be necessary at the next meeting in April, which we foresee with less probability.
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