Annual inflation in Chile reaches 11.5%, its highest level in 28 years

RIO DE JANEIRO, BRAZIL – Inflation in Chile is felt in the pockets as it has not been since the nineties, in the early years of the transition to democracy. There are millions of Chileans who, unlike in other countries in the region, had not experienced the phenomenon but are now experiencing it.

The Consumer Price Index (CPI) rose by 1.2% in May, as the National Statistics Institute (INE) reported on Wednesday, although the figure was within the market’s expectations.

It is the third consecutive month in which it climbed over 1%, bringing inflation to 6.1% in 2022 and reaching 11.5% in the last 12 months, the highest level since July 1994, exactly 28 years ago. The price increase mainly impacts food and non-alcoholic beverages and transportation.

The Chilean Central Bank, an autonomous entity, projects that inflation will grow even more and that for the July-September quarter, it will be close to a 13% annual increase, according to the Monetary Policy Report (IPOM), released on Wednesday.

The agency is making consecutive efforts to contain the internal rise in prices and on Tuesday increased the Monetary Policy Rate by 75 basis points to 9%, the highest level in 20 years.

Although inflation is a global problem, the president of the Central Bank, Rosana Costa, assured this Wednesday in Congress that internal factors explain two-thirds of the inflation suffered by Chile.

The economist referred to the “significant increase” in demand in 2021, which was mainly explained by the consecutive withdrawals of pension funds, which savers were able to make on three occasions after laws were passed in Parliament amid the covid-19 crisis.

Costa added that “investment fundamentals” have worsened and are forecast to fall even “more significantly” in the remainder of 2022 and 2023.

Along with the fall in annual wages, money circulating, and imports of consumer goods, the World Bank on Tuesday reduced Chile’s growth prospects: 1.7% for 2022, 0.8% for 2023, and 2% for 2024.

The Bank of America, meanwhile, warned from New York about the “stagflation” phase that the Chilean economy is going through, that is to say, persistent inflation plus general deceleration.

Gabriel Boric’s Finance Minister, Mario Marcel, from the president’s tour to the United States, assured that the world was facing a “contractionary shock”.

Regarding the inflation figures for May in Chile, he said that “it is lower than that of the two previous months and is influenced by food and fuel prices as a result of the situation in Ukraine”.

For Marcel, the measures taken by the Central Bank complete the necessary adjustment to reduce internal pressures on inflation, so there would remain some additional rate increase, but less than 75 basis points.

“It is important to resist or hold on to the Central Bank’s monetary policy approach, which implies looking at medium-term inflation, not at the latest data and, therefore, taking into account the origins of the pressures on prices and not subjecting the Chilean economy to an excessive contraction given the factors that end up imposing themselves on the inflationary dynamics,” assured Marcel.

Regarding the Central Bank’s projections that estimate that Chile would have negative growth in 2023, the Minister of Finance said that this scenario pushes the Government to “intensify efforts to stimulate investment -starting with public investment-, work on measures to eliminate uncertainty in the economy, facilitate private investment processes and follow a fiscal policy that is consistent with these medium-term objectives”.

The complex economic scenario finds Chile in a political and social process of profound transformations. In less than a month, at the beginning of July, the constitutional convention will deliver the proposed Constitution to President Gabriel Boric.

On September 4, the referendum will be held, and the Government, which in the last few days has increased its popularity after a complex landing, has not hidden that it is for the approval of the text.

With information from El País