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Chilean Peso Fell: What Does Inflation Have to Do with It?

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Chilean peso declines as inflation rises

The Chilean peso gave away losses against the US dollar on February 8, 2016. Inflation rates increased beyond expected levels in the month of January, increasing speculations that the Chilean Central Bank will be under pressure to raise interest rates.

Consumer prices increased by 4.8% in January on an annual basis against a rise of 4.4% in the previous month. On a monthly basis, inflation increased by 0.5% in January against a flat growth in the previous month and a forecast of 0.3% growth.

Core inflation was recorded higher at 0.7% in January on a monthly basis against a 0.2% rise in December last year. Higher inflation also put pressure on imports in Chile that are expected to get more expensive due to the price rise and a depreciating currency.

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Decline in exports and imports

The trade balance came in at a surplus of $685 million for the month of January against a deficit of $150 million in the previous month. Exports stood at $5.1 billion in January, while imports came in at $4.4 billion. On an annual basis, the value of exports fell by 14.1% in January, while imports declined by 12%.

Impact on the market

Looking at ETFs, the iShares MSCI Chile Capped ETF (ECH) fell by 0.55% on February 8, 2016, as the Chilean peso was trading weaker.

Chile-based ADRs (American depositary receipts) were performing on a mixed note. Enersis (ENI) was trading on a lower note, with a fall of 1.1% at the end of the day. Empresa Nacional de Electricidad (EOC) fell by 1.9%. On the other hand, Banco de Chile (BCH) rose by 0.31%, and Cencosud (CNCO) was trading higher by 2.4% at the end of the day on February 8, 2016.

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