(Bloomberg) -- Chile’s inflation hit a new 28-year high in July as food and transportation prices surged and the peso plunged to an all-time low, boosting pressure on the central bank to extend its aggressive interest rate hikes.

Prices rose 13.1% from a year prior, more than the 13% median forecast of economists in a Bloomberg survey. Monthly inflation stood at 1.4%, the national statistics institute reported on Monday.

Chile’s annual inflation rate has risen for 17 consecutive months amid several back-to-back shocks. Last year’s domestic stimulus and early pension withdrawals sparked a consumer spending boom, while higher global commodity prices and the peso’s nose-dive worsened price pressures in 2022. In response, the central bank has raised rates by 925 basis points in just over a year and will likely lift them again next month.

Read more: Chile’s Marcel Looks to Reassure Investors After Tumultuous Week

What Bloomberg Economics Says

“Chilean inflation rose again in July to the highest since 1994. Data confirmed prices remain under upward pressure from supply shocks, accumulated peso depreciation and robust domestic demand. The result is likely to keep inflation expectations high.”

--Felipe Hernandez, Latin America economist

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Food and non-alcoholic beverage prices rose 1.9% in July as meat and fruit jumped by 3.1% and 5.1%, respectively, according to the statistics agency. Transportation costs leaped by 3.4%, with gasoline soaring by 4.6%.

Meanwhile, clothing prices fell 2.7% during the same period.

Energy Prices

On July 14, the central bank announced a $25 billion intervention program to prop up the peso. Since then, the currency has strengthened toward 900 per dollar from roughly 1,050 and volatility has dropped. 

A weaker currency fans price pressures by making imports more expensive. “The dollar reached a peak in July. Due in part to that reason, we also had a peak in fuel price increases,” Finance Minister Mario Marcel told reporters later on Monday.

Policy maker’s peso intervention has reduced market distortions, central bank President Rosanna Costa said at an Aug. 3 event. Still, consumer price expectations have risen and the economy has important imbalances, including a large current account deficit and resilient consumption, she said.

“The inflationary pressures are going to last into September or October,” said Nathan Pincheira, chief economist at Finanzas y Negocios SA. “Energy prices are going to have an important impact.”

He expects the key rate to peak at 11% in October, up from the current level of 9.75%.

Chile’s annual inflation rate is higher than major regional economies including Mexico and Brazil. It still falls short of Argentina, which has a rate above 60%.

(Updates with comments from finance minister in 8th paragraph)

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