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Chile’s cost of living fell the most since 1934 in the year through November as prices for electricity and clothing tumbled.

Consumer prices plunged 2.3 percent in November from a year earlier, the National Statistics Institute said today. The median estimate in a Bloomberg survey of 17 economists was for a 1.9 percent decline. Traders in the interest-rate swap market cut their inflation expectations by the most since August after the report.

The data “suggests that internal demand in Chile remains very low,” said Juan Pablo Castro, an economist at Banco Santander SA in Santiago. “This supports the central bank’s view that it will keep interest rates low until the second quarter. The market was very surprised.”

Chilean prices are falling faster than those of its main trading partners, said Jorge Selaive, chief economist at BCI Corredor de Bolsa SA in Santiago. That may offset the 6.3 percent rally by the peso last month and make the bank less likely to intervene in the exchange-rate market.

From a month earlier, prices fell 0.5 percent in November, the institute said. Economists expected a 0.1 percent decline, according to the median of 21 forecasts in a Bloomberg survey. Prices excluding food and fuel dropped 0.6 percent.

Swaps

The bank will probably leave its interest rate at 0.5 percent, the minimum, when it meets on Dec. 15, according to all 10 economists in a Bloomberg survey. The bank is due to publish updated growth and inflation forecasts on Dec. 16.

“The economy is picking up and there are the right external and domestic conditions for that to continue, so I don’t think this is a deflationary environment,” said Jimena Zuniga, an economist at Barclays Capital in New York no fax payday loans.

The central bank targets annual inflation of 3 percent.

The one-year breakeven inflation rate dropped to 0.83 percent as of 10 a.m. in New York from 1.06 percent yesterday, as the yield on a one-year inflation-linked swap rose 21 basis points, according to prices from Deutsche Bank AG.

The rate measures inflation expectations by comparing the yield investors demand to lend in pesos with the yield they demand to lend in unidades de fomento, Chile’s inflation-linked currency unit.

“No one expected this: it surprised the market and all the analysts,” said Selaive at BCI Corredor de Bolsa.

Prices for electricity, gas and fuel dropped 5 percent last month after the Energy Ministry cut regulated tariffs on electricity, saying the dollar’s decline had helped lower the cost of generating power.

The cost of clothing fell 2.8 percent, the seventh monthly decline of the year, and footwear became 2.5 percent cheaper, the statistics institute said.

The peso was little changed at 501.73 per dollar at 8:43 a.m. New York time from 501.10 yesterday. The currency has appreciated 28 percent against the dollar so far this year.

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