The first half of the game is almost over
The Monthly Index of Economic Activity delivered some good news in March – even though its growth was strongly favored by the low comparison base in mining. And business confidence was positive for the fourth consecutive month. Industrial production continued to disappoint. Though retail sales surprised markets on the downside, the numbers are not bad at all.
Investment is still weak, as are new home sales. But the future looks brighter. Business confidence in April was well above mid-2013 to 2017 levels, and construction permits recovered in March. The value of these imports grew 8.4% in the 12 months to April, but close to zero since June 2017.
Both exports eand imports remained strong in April, and the trade balance continued to improve.
Both employment and the labor force continued to grow relatively rapidly in Q1. So the unemployment rate hasn’t fallen. The 12-month variation of employment was led by an increase in payroll. Private employment also showed some signs of picking up, relative to public employment.
After two consecutive months of surprises on the downside, April’s CPI came in above expectations. The 12-month variation rose from 1.8% in March to 1.9% in April, marginally below the 2%-4% Central Bank target. The 12-month variation of the various measures of core inflation remained stable as well. The prices for products that are more sensitive to exchange rate fluctuation stabilized in April. This sustains the hypothesis that the pass-through from the 9% appreciation that the peso experienced between mid-December 2017 and mid-April 2018 was faster than in previous episodes, but not stronger.
We are about to see a turn in the monetary policy stance. April’s inflationary surprise, March’s positive IMACEC, the recent depreciation of the peso and the increase in the international price of oil and gasoline will drive markets to focus on when and how fast the Central Bank will start to withdraw the monetary stimulus, and what the terminal rate will be. It is important to bear in mind the most important events that will affect market expectations in the next few months.
Chile's traditional state of the union speech has been moved from May 21st to June 1st. While presidential advisors are busy finishing the speech, last-minute issues will make themselves felt. So, together with the expected emphasis on three broad areas -- social policy, economic reactivation (including a “fixing” of former president Michelle Bachelet's tax reform), and modernization of the state – President Sebastian Piñera should address the growing demands from the women's movement that has taken to the streets.
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