Chile inflation undershoots estimates ahead of interest rate decision

SANTIAGO, Oct 8 (Reuters) - Consumer prices in Chile rose less than expected in September, a month in which inflation usually tends to be higher due to national holidays, paving the way for the central bank to keep reducing borrowing costs.

Prices in the world's largest copper producer were up 0.1% in September from the previous month, data from statistics agency INE showed on Tuesday, below the 0.30% expected by economists polled by Reuters.

Annual inflation hit 4.1%, down from the 4.7% reported in the previous month.

Chile's central bank holds a monetary policy meeting next week, and market participants forecast policymakers will cut the country's benchmark interest rate by 25 basis points to 5.25%.

Seven of the thirteen divisions that make up the consumer price index posted increases in September month. The biggest impact came from clothing and footwear, which recorded a 3.3% rise, INE said in a statement.

Among the groups that saw monthly price declines, food and non-alcoholic beverages stood out with a 0.5% drop, the agency added.

Last month, the Chilean central bank raised its projection for headline inflation this year to 4.5% from the 4.2% estimated in June, citing a "sharper rise in volatile components" such as electricity costs.

However, the country's monetary authority - which has an inflation target of 3% - still expects inflation to come down "faster than expected" because of lower demand pressures, which has allowed it to cut interest rates.

Andres Abadia, Pantheon Macroeconomics' chief economist for Latin America, said the fresh inflation data supports the bank's decision to lower borrowing costs by 25 basis points in September and pave the way for further easing on Oct. 17.

He said, however, that "higher electricity prices will keep headline inflation around current levels throughout the fourth quarter, preventing a prolonged disinflation trend". (Reporting by Fabian Andres Cambero and Natalia Siniawski; Editing by Gabriel Araujo and Jonathan Oatis)