Macro Watch: February CPI Chile, Mexico, Costa Rica

Chile sees zero inflation in February

Chilean statistics agency INE reported zero monthly inflation for February, bringing annual inflation to 1.7%, leading analysts to call for a weaker-than-expected rebound in prices in 2019.

"The weaker than expected data mean that the headline rate is unlikely to rise this year as quickly as we had previously anticipated," said Capital Economics in a note.

"While we see a gradual rebound in inflation as the year progresses, the results of the methodological changes have led us to revise our year-end forecast to 2.6% (3.0% previously)," wrote Itaú's analysis team. "The message from the central bank has been that short-term inflation expectations have been reduced, but the medium-term outlook remains practically unchanged at 3%. Therefore, we expect the next monetary policy report to emphasize that the probability of rate movements in the short term is low."

Capital Economics struck a similar tone, "Chilean policymakers have cut interest rates in the past, despite rising inflation, due to weaker economic growth (as happened in 2014). As a result, we don't expect further hikes until growth recovers later in 2020. The markets are pricing in around 25bp of hikes for this year."

Mexico CPI hits target zone

Mexico saw CPI decline 0.03% in February on a monthly basis, the lowest monthly inflation registered for a February since 2002, bringing annual inflation back into the central bank target range of 3-4% to 3.94% from 4.37% the previous month.

In light of the results, Citibanamex confirmed its forecast for year-end inflation of 3.90%, adding, "the observed figure of 3.94% per annum at the end of February indicates that headline inflation continues to decelerate rapidly."

The bank added that around 49% of items tracked within the CPI are now growing at rates of 4% or less, the highest proportion since the end of 2016. However, the non-core continues to be the main driver of recent declines in inflation overall, while the slowdown in core inflation has been more modest.

Statistics agency Inegi also reported Friday that gross fixed investment in Mexico continued to slide in December 2018, falling 0.7% month-on-month and 6.4% compared to December 2017.

Costa Rica CPI holds low

Costa Rican annual CPI continued to track lower in February, falling further below the central bank's 2-4% target range, to 1.54% last month, according to statistics agency INEC.

Inflation has been sliding lower in Costa Rica, falling from 2.29% in November, to 2.03% in December to 1.67% in January.

Monthly inflation reached only 0.08% in February with the largest upward contributions connected to a 1.37% increase in auto prices and a 4.79% month-on-month increase in primary education costs.

Inflation looks to climb back up to 3.5% in 12 months, according to the latest central bank inflation survey, returning to the bank's target range.