What to expect after the first month
Our reading of February’s Monthly Index of Economic Activity is positive, based on the fact that that the 3.6% seasonally adjusted 12-month variation of the IMACEC, excluding mining, was the largest since we’ve started using official data. Retail sales grew at a healthy rate in February, and the change in composition in favor of non-durable goods is good news. Manufacturing production, on the contrary, was a negative surprise.
Business confidence retreated somewhat in March but remained in positive territory for the third consecutive month, after more than three years on pessimistic ground. But beyond the recent improvement in business expectations we still haven’t seen concrete signs of a pickup in investment. The value of capital goods imports, excluding airplanes, trains and other similar transportation vehicles fell again in March. Construction permits showed a drastic increase in February, but we still do not see an acceleration in shipment of materials or the Monthly Index of Construction published by the Construction Chamber of Commerce.
The growth of exports slowed in the month of March, and the trade balance scored a surplus of 792 million USD.
Labor market data for the December 2017-February 2018 moving quarter were positive. Employment continues to grow, and the quality of employment continues to improve. Even though the unemployment rate came in above expectations and stood at a level that is high for February, this still reflects an “encouragement effect”. The rate of growth of payrolls continued to accelerate.
In March, the 12-month variation of the CPI fell from 2.0% in February to 1.8%. Thus, inflation fell below the Central Bank’s 2-4% target after being within range for only three months. The pass-through of the recent appreciation of the exchange rate to the CPI has been faster than we expected. After a generalized fall in February, core inflation measures were largely unchanged in March.
It is worth mentioning that April’s inflation conveys an extra degree of uncertainty that relates to a change in the regulated electricity tariff to households. Depending on how the National Institute of Statistics captures this change we may see a negative monthly inflation rate in April, and the 12-month inflation rate will be close to 1.5%. We believe that under this scenario there is a good chance the Central Bank will make “preventive” cuts to the Monetary Policy Rate (TPM). The future succession of events could result in lots of uncertainty.
The Piñera administration has sent Congress a new immigration bill that modernizes the way Chile will treat new arrivals to the country. It takes into account the reality of the growing demand for work in Chile and the country’s actual need for new workers. The outdated system has promoted illegal immigration and negative views among parts of the Chilean public.
By reviewing administrative decrees, the Piñera government is slowing down or overturning much of the legislation implemented by its predecessor. The opposition has labelled this “the administrative chainsaw”. While Piñera has opted for this route to avoid having to go through a divided Congress in which he lacks a majority, he is aware that to a large extent, he was elected with a fairly broad mandate to correct the excesses of the Bachelet years.
Now read on...
Register to sample a report