Never cared for what they say
In its March Monetary Policy Report, the Central Bank of Chile revised up its base scenario for 2023 GDP and consumption growth. Consumption growth projections still seem low to us. Economic activity remained stagnant in February. The service IMACEC, retail sales and imports show that consumption might be stagnating as well. The trajectory of investment remains a concern, with little improvement in sight. On a more positive note, monthly exports reached an all-time high, and foreign accounts show some signs of improvement.
The INE employment report for the rolling quarter of December-February had an unfavorable tone. Compared to the previous rolling quarter (November-January), the change in total employment decelerated again. A noteworthy fact is the loss of jobs in sectors that were key during the expansion phase. There were mildly negative signs in the unemployment rate.
In its March IPOM, the Central Bank revised its inflation projections upward, particularly for the Volatility Trimmed Consumer Price Index. The March CPI confirms the relevance of service prices and indexation in the inflation process. The appreciation of the currency, for its part, showed evidence of causing a deceleration durable goods prices.
In the March IPOM, the Central Bank highlights that it will begin the cutting cycle after what it sees as a significant deceleration of consumption, an activity gap moving towards negative values, and core inflation clearly slowing. Our interpretation of the report's base scenario suggests that rate cuts will begin when the volatility trimmed CPI (IPCSV) accumulates three consecutive months of (seasonally-adjusted) variations of around 0.5%. Factoring in this information, we have modified our base scenario, postponing the first 50bp cut in the TPM from June to July.
Chile's government passed the Nain Retamal Law, which increases penalties for some crimes, and gives police more power to use service weapons. This underscores the extent to which crime and fear of crime have moved to the top of the agenda—a bonus for the political right on the eve of the upcoming election of Constitutional Council members.
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