If Not For You, Winter Would Have No Spring (Bob Dylan)
With the Monthly Index of Economic Activity rising above market expectations in August, the Minister of Finance treated the report as an opportunity to boost market sentiment. But we should be cautious in talking about re-acceleration. The Monthly Index of Business Confidence also fell back to early-year levels -- so talk of green shoots, or spring, may be premature.
Retail sales were up just 0.2% y/y in August. While that surprised on the downside, the mediocre performance can be attributed to typical volatility.
The labor market showed signs of stability, though we should again look with skepticism at that data. New employment figures are certainly good news, showing that the labor market has adapted to economic weakness. And although the 6.9% unemployment rate surprised on the downside, it was also the highest August unemployment rate since 2011. After recent deceleration, nominal wage growth rebounded to H1 levels. In real terms, the picture was even more auspicious. But high y/y variations may be explained by a jump between December 2015 and January 2016.
The CPI increase in September came in far below expectations, and core inflation moderated. Market expectations for short-term inflation fell. Beliefs about the Central Bank of Chile’s next move are shifting toward an early 2017 rate cut. We should expect that, with the exchange rate likely to be the strongest determinant of rate decisions.
Finance Minister Rodrigo Valdés was able to impose an evidently fiscally responsible 2017 budget but, as political opponents succeeded in stuffing the proposal with spending that doesn’t necessarily coincide with Chileans’ best interests, the budget may attract congressional opposition.
Nationwide municipal elections October 23rd will be used by the political class as a barometer of where things stand in the run-up to next year’s presidential election. As the results can be measured in many different ways -- number of mayors, number of council members, total percentage of the vote, and so on – various groups are likely to claim victory.
Nor will local results necessarily translate into success at the national level. The real issue is linked to turnout: Given the new, voluntary voting system, new party laws that limit campaign advertising and the National Electoral Service’s problems with the electoral registers, we expect a historically low turnout.
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