- Chile: August CPI came in at 0.6% m/m (4.1% y/y), significantly above expectations
- Mexico: Automotive sector shows mixed signals in August
CHILE: AUGUST CPI CAME IN AT 0.6% M/M (4.1% Y/Y), SIGNIFICANTLY ABOVE EXPECTATIONS
- Our 4.5% year-end inflation forecast is likely to become the new market consensus soon
CPI rose 0.6% m/m (4.1% y/y), significantly above the market consensus, survey-based expectations, inflation forwards, and our own forecast (all at 0.3% m/m). Core CPI excluding volatile items was in line with our projections, while the surprise was mainly driven by volatile components within the transportation and food divisions. We also note an increase in the diffusion of core services inflation which, although not accompanied by higher inflation so far, raises concerns about future price pressures in the coming months. Our early forecast of inflation around 4.5% in December is beginning to be validated by incoming data.
We estimate that the Central Bank will revise its inflation forecast upward and deliver a more hawkish message regarding the policy rate. Despite labour market slack and the recession currently affecting the economy, the Board is likely to adopt a more hawkish tone regarding the future path of the monetary policy rate at today's announcement. This would be supported by intensifying geopolitical risks, rising fuel prices, persistently higher labour costs, an exchange rate that remains weaker than implied by fundamentals, and the price effects associated with the El Niño phenomenon.
Inflation diffusion eased broadly in line with expectations, although with heterogeneous dynamics (chart 1). The share of products registering price increases at the headline level remained close to historical averages, while core CPI diffusion was lower, mainly due to weaker diffusion among goods. However, services diffusion accelerated once again (chart 2), led by the transportation and health divisions.
We expect September CPI to be heavily influenced by energy-related items. In addition to the imminent increase in fuel prices, which exceeds the adjustment typically allowed under the MEPCO mechanism, we have identified increases in the energy component of residential electricity tariffs following the implementation of Decree 8T-2026. Together, these two categories could contribute around 0.3 percentage points to September CPI, creating a high inflation floor for a month that is typically characterized by numerous seasonal price increases.
Our 4.5% inflation forecast for December 2026 now appears conservative, leading us to introduce an upward bias to the outlook. Our assessment that inflation would be increasingly driven by volatile items during the second half of the year is beginning to materialize in the data. Indeed, the August CPI print strengthens our scenario of inflation ending the year above market projections, a view we adopted early this year following the international fuel price shock.
Inflation expectations are likely to adjust upward, potentially fueling an incipient de-anchoring process over the coming months. The August print, together with expectations for a September reading at or above the current market consensus (0.5% m/m), should lead to upward revisions in inflation forecasts for the months ahead, initially driven by volatile components. Should the effects of El Niño intensify and additional increases in energy prices materialize, the two-year inflation expectation in the Economic Expectations Survey (EEE) could move away from the 3% target for the first time since 2023.
The BCCh is likely to raise its 2026 inflation forecast, incorporating the effects of the El Niño phenomenon. Market projections for September place annual inflation at around 4.3% y/y, significantly above the level projected in the June Monetary Policy Report for the end of the third quarter (3.8% y/y). This would likely be sufficient to prompt an upward revision to the bank’s December inflation forecast of 4.2% y/y, incorporating higher fuel prices and the effects of El Niño. An important question is whether higher inflation driven by volatile items could lead the Board to consider policy rate hikes at upcoming meetings. In our view, this will ultimately depend on whether two-year inflation expectations show signs of becoming de-anchored.
—Aníbal Alarcón
MEXICO: AUTOMOTIVE SECTOR SHOWS MIXED SIGNALS IN AUGUST
In August, the automotive outlook showed mixed signals (chart 3). A total of 344,940 vehicles were produced, representing an annual decline of 1.4% (from the previous -2.2%). Exports increased by 1.3% year over year, reaching 300,475 vehicles exported. Meanwhile, 129,362 light vehicles were sold, posting an annual variation of 2.2% (down from 3.4%). In the January–August period, production totaled 2,465,140 vehicles, an annual variation of -0.8%; sales reached 1,014,715 units, with a 4.7% increase; and exports amounted to 2,251,254 units, with an annual variation of -0.1%.
—Rodolfo Mitchell, Miguel Saldaña & Martha Cordova
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.