Despite inflation was somewhat lower than expected in December; it was well above the target range due to the “normalisation” of regulated prices together with the impact of the exchange rate depreciation and other supply shocks. December’s inflation was also lower than expected in Chile, where incoming data support a pause in MPR at this week’s Monetary Policy meeting.

Brazil - Inflation peaked at 10.7% YoY in December

Inflation closed 2015 at 10.67% YoY, somewhat lower than expected (BBVAe: 10.8% YoY; consensus: 10.7% YoY), but still well above the target range (2.5%-6.5%). Increases in food, housing and transport prices jointly accounted for 71% of inflation in 2015. The “normalisation” of regulated prices, which increased 18.1% YoY in 2015, is directly related to the abnormally high inflation in the housing and transport groups. Moreover, it is one of the factors, together with the impact of the exchange rate depreciation and some other supply shocks, that help to explain the 12.0% YoY increase in food prices in 2015. After trending up during the last year, inflation should start to decline in January, due to lower (although still high) pressure from regulated prices. Inertia and the effect of a weaker currency cast doubts on the convergence of inflation to the target range in 2016, but we still expect inflation to reach 6.1% YoY in December 2016.

Chile - CPI closes 2015 with an increase of 4.4% YoY

CPI registered a 0.0% MoM figure in December 2015 (+4.4% YoY), below our expectations and those of the market (both at +0.1% MoM). The monthly print was driven by positive contributions from transportation fares and housing that were fully offset by higher than expected declines in food stuffs. Nonetheless, the measure that excludes foods and energy increased +0.3% MoM (+4.7% YoY). Finally, all incoming data support a pause in rates at this week’s monetary policy meeting (see our Chile Flash in Spanish for details).

What to watch today

No relevant news is expected for today.

This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.

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