Chilean traders’ inflation expectations fell the most in three weeks as the price of oil, the country’s biggest import, headed for its lowest closing price since October.
The one-year breakeven inflation rate declined 11 basis points, or 0.11 percentage point, to 2.67 percent at 4:21 p.m. in Santiago. It was the lowest level since January. The two-year breakeven inflation rate fell 10 basis points to 2.67 percent, ending six days of increases. The forwards market for unidades de fomento, Chile’s inflation-linked accounting unit, showed traders expect consumer prices to rise 2.33 percent in 2012, down from the 2.43 percent increase they predicted yesterday.
Chile relies on imports for almost all of its oil and gas. The price of a barrel of Brent crude for July delivery fell 13 percent in the past month to $97.36. Consumer prices in Chile were unchanged last month, surprising all 14 economists in a Bloomberg survey, who expected an increase.
“The market is readjusting expectations for inflation based on international commodity prices like oil,” said Bret Rosen, a strategist at Standard Chartered Plc in New York. “Oil feeds through into Chilean consumer-price inflation. You also had a pretty good inflation print in May. There would have been deflation if not for electricity prices.”
Unidad de fomento forwards are showing traders expect a 0.06 percent increase in prices this month. Chile’s second- largest import is diesel, according to central bank data. Chile’s peso fluctuated between gains and losses, trading little changed at 504.10 per dollar as concern Spain will miss its budget-deficit targets offset speculation the U.S. Federal Reserve would do more to bolster the world’s economy biggest economy.
European bond yields increased after Fitch Ratings Managing Director Ed Parker said Spain will miss its budget deficit target by a “substantial margin” this year and next, and Fitch cut its credit rating on 15 Spanish banks. The yield on Spain’s 10-year bonds touched a euro-era high of 6.83 percent.
“Yields are rising everywhere, but there is also some optimism that the Europeans or the Fed could take more measures,” said Cristian Donoso, a trader at Banchile Corredores de Bolsa SA. “We have lost our bearings a bit. You just have to try to survive. This month is going to be extremely intense.”
Chicago Fed President Charles Evans said in a Bloomberg Television interview that he would support buying assets including mortgage-backed bonds to generate faster job growth.
IMF on Chile
Chile is the most vulnerable country in Latin America to the European banking industry, according to an April report from the International Monetary Fund. European bank claims on Chile are worth more than 25 percent of the country’s gross domestic product, according to the IMF.
International investors in the peso forwards market trimmed short positions in the peso to $10.2 billion on June 8 from a record $10.6 billion on the previous day. Local investors including pension funds and insurers had a $17 billion long peso position, little changed from a day earlier.
The peso is “very cheap” and may advance to as strong as 485 per U.S. dollar, Flavia Cattan-Naslausky, a strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said in a phone interview.
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