This week, the INE published the CPI for November, which rose 0.5% compared to October. This variation is significantly lower than the previous two (1.2% and 1.3% in September and October, respectively), which could have been interpreted 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 may even have intensified them.

In last month's report, we pointed out that the variation was somewhat misleading, since only two products accounted for more than 60% of the increase, while underlying indicators showed a significant slowdown. Well, it seems that was just a blip, as this time around the variables related to inflationary pressures showed an increase once again. First, the CPI excluding volatile items rose by 0.7% month-on-month (0.3% month-on-month in October), bringing its twelve-month increase to 4.7%. Breaking it down, once again it was the goods component that led the rise (1.2% m/m; 5.7% y/y), although the services component did not fare badly either (0.4% m/m; 4.1% y/y). Secondly, the diffusion index (measured as the percentage of goods and services that increased in price) reached 58%, WELL above November last year (38%), 2019 (48%) and the average for Novembers since 2013 (45%). Thirdly, but no less importantly, we note that the CPI for high-demand goods and other indicators related to inflationary perceptions resumed their upward trend after the respite we had observed in October.

Therefore, we can see that local inflationary pressures, coupled with external pressures exacerbated by idiosyncratic currency depreciation caused by political and financial instability, continue to be present in our economy. This has a relatively greater impact on low-income individuals and all those families and businesses that do not have or cannot access instruments that protect them from inflation. That is why, given its constitutional mandate, we confirm our expectation of a further increase in the MPR during the Central Bank's meeting on the 14th of this month, of at least 100 bp, which would attempt to reach a neutral real rate level. The final word will be up to the Council in the IPoM publication, but we believe that, after that increase, there would be at least another 75 bp increase. Why not much more? Because 2022 will be different from 2021, demand will show a significant slowdown from the second quarter onwards, and if we see more inflationary pressures, we believe they are more likely to come from the supply side.

Therefore, in order to make serious analyses, we must not allow ourselves to be overly influenced by the latest data. Otherwise, as is often the case, one swallow does not make a summer.

Nathan Pincheira

Chief Economist at Fynsa