This week, the INE released the CPI for November, which rose 0.5% compared to October. This increase was significantly lower than the two previous months (1.2% and 1.3% in September and October, respectively), which could have been interpreted as a slowdown in inflationary pressures. However, we believe nothing could be further from the truth and that, unfortunately, the data for the tenth month of the year may even have intensified those pressures.

In last month’s report, we noted that the change was somewhat “misleading” since just two products accounted for more than 60% of the increase, while the underlying indicators showed a significant slowdown. Well, it seems that was just a one-off, since this time around, the variables related to inflationary pressures once again showed an increase. First, the CPI excluding volatile items rose 0.7% m/m (0.3% m/m in October), bringing its year-over-year increase to 4.7%. Breaking it down, the goods component once again led the rise (1.2% m/m; 5.7% y/y), although the services component also performed quite well (0.4% m/m; 4.1% y/y). Second, the diffusion index (measured as the percentage of goods and services whose prices increased) reached 58%, WELL above November of last year (38%), November 2019 (48%), and the average for Novembers since 2013 (45%). Third, but no less important, we note that the CPI for high-demand goods and other indicators related to inflation expectations resumed their upward trend, following the lull we had observed in October.

Therefore, we can see that domestic inflationary pressures, combined with external pressures exacerbated by the idiosyncratic currency depreciation caused by political and financial instability, continue to be present in our economy. This affects lower-income individuals relatively more, as well as all those families and businesses that do not have—or cannot access—instruments to protect them from inflation. That is why, given its constitutional mandate, we confirm our expectation of another increase in the TPM during the Central Bank’s meeting on the 14th of this month—of at least 100 basis points—which would aim to reach a neutral real interest rate level. The Council will have the final say when it publishes the IPoM, but we believe that, following this hike, at least another 75 basis points of increases would be needed. Why not much more? Because 2022 will be different from 2021; demand will show a significant slowdown starting in the second quarter, and if we see further inflationary pressures, we believe they are more likely to stem from the supply side.

That's why, to conduct a serious analysis, we shouldn't let ourselves be overly influenced by the latest data. After all, as is often the case, one swallow doesn't make a summer.

Nathan Pincheira

Chief Economist at Fynsa