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UBS: Inflation Adds Complexity To Next Monetary Policy Decisions

CHILE
  • The large surprise in March inflation could send an initial warning to the CB with regards to their updated macro and policy scenario. Although the March print was expected to be high on account to education and some Easter holiday-related items, the broader and continuing strength in core inflation is a sign of concern, together with the sharp rise in food inflation.
  • Note that with respect to the latest inflation forecasts presented in the March IPOM, inflation for 1Q’21 deviated only slightly from the CB’s expectation (IPOM: 8.0%; actual data: 8.3%); however, the path for next quarters could become more uncertain, hence opening the door for more rate hikes than what the CB hinted in the March IPOM.
  • UBS leave for now their expectation of a 50bp rate hike in May unchanged, but will watch closely the CB inflation expectations survey and the March IMACEC data to reassess their base scenario (rates at 7.50%-8.00% by June).
  • Note that the CB will meet a day before the release of the Apr CPI print, something that emphasizes even more the importance of activity data for Q1 to validate the March IPOM base scenario.
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