This week, INE published the CPI for November, which increased 0.5% with respect to October. This was a much smaller variation than the two previous ones (1.2% and 1.3% in September and October, respectively), which could have been read as a slowdown in inflationary pressures. However, we believe that nothing could be further from the truth and that, unfortunately, the data for the tenth month of the year could even have intensified inflationary pressures.

During the previous month's issue, we highlighted that the variation was a bit of a "liar" since only two products explained more than 60% of the increase, while underlying indicators showed a significant deceleration. Well, apparently that was just a swallow, since this time again the variables related to inflationary pressures showed an increase. First, the CPI excluding Volatiles increased by 0.7% m/m (0.3% m/m in October), bringing its 12-month increase to 4.7%. Disaggregating, it was once again the goods component that led the increase (1.2% m/m; 5.7% y/y), although the services component did not do badly (0.4% m/m; 4.1% y/y). Second, the diffusion index (measured as the percentage of goods and services that increased in price) came in at 58%, WAY above last year's November (38%), 2019's (48%) and the average for Novembers since 2013 (45%). Third, but not least, we note that the CPI of high demand goods and other indicators related to inflationary perception resumed their upward path, after the respite we had observed in October.

Therefore, we can see that local inflationary pressures, added to external pressures exacerbated by the idiosyncratic exchange rate depreciation caused by political and financial instability, are still present in our economy. This affects relatively more the people with less resources and all those families and companies that do not have or cannot have access to instruments that protect them from inflation. This is why, given its constitutional mandate, we confirm our expectation of a new increase in the TPM during the meeting that the Central Bank will hold on the 14th of this month, of at least 100 bp, which would try to reach a neutral level of the real rate. The final word will be given by the Board in the publication of the IPoM, but we believe that, after that hike, there would be at least 75 bp more of increase. Why not much more? Because 2022 will be different from 2021, demand will show a significant slowdown from the second quarter and, if we see more inflationary pressures, we believe they are more likely to come from the supply side.

For this reason, in order to make a serious analysis, we should not be too influenced by the latest data. Lest, as is often the case, one swallow does not make a summer.

Nathan Pincheira

Chief Economist of Fynsa