Chile Fuel Prices to Jump 54% as Kast Ends Subsidy

Key Points

The Chile fuel price shock that markets feared has arrived. The Kast government announced Monday night that gasoline and diesel prices will rise by as much as 54% starting Thursday, ending weeks of speculation about the global oil crisis reaching consumers, The Rio Times, the Latin American financial news outlet, reports.

Finance Minister Jorge Quiroz delivered the news in pre-recorded primetime interviews, invoking an emergency escape clause within the MEPCO fuel stabilization mechanism. Wholesale 93-octane gasoline will climb roughly 44%, or CLP$370 ($0.41) per liter, while diesel will surge approximately 54%, or CLP$580 ($0.64) per liter.

Why Chile Fuel Prices Are Rising Now

The MEPCO system, created in 2014, normally smooths international oil fluctuations by adjusting fuel taxes counter-cyclically. But the mechanism has been hemorrhaging money since oil surged past $100 per barrel following the Iran conflict. Quiroz said the government has been spending $140 million per week to maintain artificially low prices.

The minister blamed the previous administration for leaving insufficient fiscal reserves. Under the emergency decree, the MEPCO calculation window shifts to four weeks, transmitting international prices more rapidly to consumers before returning to its normal band.

Inflation Expectations and the Chile Fuel Price Impact

The inflation consequences are already visible in financial markets. Chile’s one-year breakeven inflation indicator jumped 25 basis points on Tuesday to 4.26%, its highest since February 2025 and well above the central bank’s 3% target. Banco Itaú now projects consumer price increases of 0.87% in March and 1.1% in April.

Andrés Pérez, Itaú’s chief Latin American economist, warned that the speed of the adjustment will accelerate pass-through into transport fares and broader consumer costs. He said rising prices and geopolitical uncertainty will likely cause businesses and consumers to cut spending, undermining the bank’s 2.6% GDP growth forecast for Chile’s oil-vulnerable economy.

One-year swap rates rose 10 basis points on Tuesday, heading for their highest close since April, while the peso weakened more than 1%. Markets now anticipate a quarter-point rate hike within three months — a dramatic reversal from the cuts that were consensus just weeks ago.

Mitigation Package and Political Fallout

Quiroz outlined targeted measures to cushion vulnerable sectors. Public bus fares in Santiago will be frozen through December, with equivalent subsidies extended to regional transport at an estimated cost of $120 million. Taxi drivers will receive a monthly CLP$100,000 cash subsidy for fuel.

Kerosene, widely used for heating in low-income households, will be rolled back to February prices and frozen through winter. To help fund these measures, the government will suspend a tax exemption on industrial fuel purchases for at least six months.

The political costs are mounting quickly. A Cadem poll published Sunday showed Kast’s approval had already fallen six points to 51% in just his second week — with the sharpest declines among women, middle-income earners, and Santiago residents.

Nearly half of respondents said the government should take on debt to maintain the subsidy rather than pass costs to consumers. Chile’s national trucking confederation warned it is evaluating protest actions.

What Comes Next for Chile

The central bank met on Tuesday with markets expecting a hold at 4.5%, abandoning the cut to 4.25% that had been widely anticipated before the oil crisis. Credicorp projects year-end inflation above 4% unless fuel prices are subsequently adjusted downward.

With oil near $100 per barrel and the Strait of Hormuz still disrupted, Chile’s vulnerability as a near-total petroleum importer means further MEPCO adjustments remain possible. Any escalation in the Middle East would push inflation higher and make rate hikes — unthinkable a month ago — increasingly likely.

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