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SANTIAGO, Oct 8 (Reuters) - Chile's government said on Wednesday it expects domestic demand, one of the economy's key drivers, to rebound next year and inflation to return to the central bank's target after remaining above its tolerance range for most of 2014.
The economy of the top copper exporter has slowed to four-year lows on the back of dwindling investment, especially in mining, and cooling consumption.
But the government and central bank has forecast a gradual recovery, beginning in the fourth quarter of 2014.
Domestic demand is seen growing 3.9 percent in 2015, well above the projected 0.1 percent expansion for this year, the government's budget office said on Wednesday.
The budget office also predicted that inflation will cool, returning to the central bank's target of 3 percent next year. Data earlier on Wednesday showed that Chile's annual inflation rate had risen to 4.9 percent.
A sharp depreciation of the peso, which has weakened over 20 percent versus the dollar since early 2013, has fueled inflation by making imports more expensive.
The currency, which been testing the 600 pesos to the dollar mark in recent days, will likely average 585 per dollar in 2015, the budget office said.
Partly due to plans to boost public spending next year, the overall economy is expected to grow 3.6 percent in 2015, the budget office said. It is seen growing around 2 percent this year. (Reporting by Anthony Esposito, Editing by Rosalba O'Brien and Richard Chang)