It has been a Wednesday of inauspicious news for the Chilean economy. Inflation rose 1% in November, according to the Consumer Price Index (CPI) released this morning by the National Institute of Statistics (INE). It is a rise above what was expected by the market because, according to the Central Bank’s Survey of Economic Expectations, the rise in the cost of living in the penultimate month of the year would reach 0.4%. In parallel, the issuing body released its Monetary Policy Report (IpoM) for December, where it projects that Chile will face a deeper recession in 2023 than expected last September. If three months ago the Central Bank estimated that GDP would fall between 1.5% and 0.5%, this report indicates that it could be in the range of 1.75% to 0.75%.
The Minister of Finance, the socialist Mario Marcel, has reacted to the surprising CPI: “Inflation is going to go down, beyond the fluctuations from one month to the next,” said the economist, referring to what had happened the previous month , where inflation suffered a moderation. The minister accepted that this is negative news, but stressed that “it is within the volatility margins in which the CPI moves”.
For Marcel, who was president of the Central Bank before entering the Government of Gabriel Boric, “this figure reminds us that inflation has not disappeared, that we still have a long way to go, we cannot let our guard down and we have to continue monitoring and taking the necessary measures”. Among the causes, he explained, is the drop in domestic demand and consumption, which will continue in 2023, although he expects annual inflation to be around 4% next year, as indicated by the issuing agency’s goal. “It’s still valid, but you don’t have to let your guard down,” he said.
With the new information available, inflation for the last 12 months reaches 13.3%, which represents a high figure for a country like Chile that, since the return to democracy in 1990, successfully controlled the rise in the cost of living. . According to the Central Bank report, this year it will grow above expectations –2.4%–, but the recession of 2023 will impact growth in 2024: if in September it was projected that in 2024 it would grow between 2.25 % and 3.25%, has been lowered to estimates of between 2% and 3%.
}The December IpoM also indicates that the recession scenario will be marked by higher-than-expected annual inflation, with an average of 6.6%. “This review considers the surprise accumulated in recent months and a real exchange rate that will fall more slowly over the projection horizon,” says the Central Bank.
According to the report of the National Institute of Statistics (INE), the rise in inflation in November is explained by the increase in the price of food and non-alcoholic beverages –bread, cereals, fruit–, together with the increase in transport. For the Minister of Economy, Nicolás Grau, the monthly inflation data reminds us that controlling it “will be a process that will take time.”
Regarding the trend GDP of the Chilean economy –the growth of a country’s productive capacity in the absence of temporary disturbances–, the Central Bank revised it downwards, placing it at 2.1% for the 2023-2032 period. Local economists, however, were slightly less optimistic and expected that for the same period it would be between 1.5% and 2%.
The economy and control of public security are two of the main priorities of the Government of Gabriel Boric, who will be in power for nine months on December 11. According to the latest Criteria survey in November, approval of the president is 30%, the lowest in his administration, while disapproval reaches 56%.
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