Chilean economic activity continued to charge to the upside in March, surprising with a 7.2% y/y (6.76% three-month moving average, 3MMA) gain—markets and RGE were expecting a 6.3% y/y increase. According to the central bank’s (BCCh) communiqué, the retail sector led growth dynamics and the fruit, forestry, fishing and transport services subsectors helped on the upside. In seasonally adjusted (SA) terms, economic activity grew 0.4% m/m, slowing from 1% m/m in January and taking the 3MMA to 0.5% m/m from 0.8% m/m.
We expect this strong expansion path to continue in March’s figures, with double-digit growth due to base effects from February’s 2010 earthquake and the closing of the output gap. Although we expect growth to normalize toward more sustainable levels, the output gap should remain closed during the year—feeding domestically driven pressures on inflation, which reached 3.37% y/y in March. It is worth noting that in its latest Monetary Policy Report, the BCCh increased its inflation projection for 2010 to 4.3% y/y from 3.3% y/y in December, above the upper bound of the target 3% (+/- 1%), given elevated commodity prices and robust domestic growth.
Economic Activity Index IMACEC (SA, 3MMA)
Source: Central Bank of Chile
Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE clients, Brazil’s Inflation Threatens to the Upside; Mexico’s Remains Gentle.