Inflation in the country does not give respite. In August, it once again surprised the market consensus and was at the top of expectations by registering a rise of 1.2%, reaching 14.1% in its annual measurement, its highest level since September 1992, that is, in 30 years.
Moreover, with the data for the eighth month of the year, between January and August, prices accumulate an increase of 9.9%, more than three times the 3% goal of the Central Bank and since it put in trouble the recent projection that it delivered the issuing entity in the Monetary Policy Report (IPoM) where it expects the year to end with an inflation of 12%. Even now, the market consensus expects a 2022 year-end CPI of 12.5%.
But not only did that news bring with it the price indicator for 2022, but also the 14.1% that accumulates in annual terms led Chile to rank as the third country with the highest annual inflation in Latin America (considering 18 nations), only surpassed by Venezuela (114.1%) and Argentina (78.5%). It far exceeds countries that historically had high inflation such as Brazil (8.7%), Paraguay (10.5%). In the last positions are Ecuador with just 3.8%; Panama with 2.1% and Bolivia 1.6%.
What explains it? Economists affirm that this reflects “clearly that the country exceeded” in fiscal aid, such as the universal IFE delivered in 2021 added to withdrawals from pension funds. Although he maintains that the effect of international prices is present, clearly being among the first countries there is an internal trigger. In addition, the two countries that surpass Chile have a price control problem that dates back several decades.
Soledad Monge, an economist at Libertad y Desarrollo (LyD) affirms that “tax aid and AFP withdrawals were policies that were not well targeted, a great liquidity was generated that produced a boom in consumption and therefore an increase in prices. . The other countries delivered bonds, but much more limited than Chile and, therefore, they did not generate the levels of inflation that Chile currently has.
Juan San Martín, an economist at Bci, reinforces this point of the analysis and maintains that “inflation in Chile is explained by around 70% of internal demand factors, due to the high fiscal and monetary stimuli to face the pandemic and the withdrawals partial pension funds.
Martina Ogaz, an economist at Euroamerica, complements the analysis by pointing out that “at the Latin American level, our case is particular, since we were one of the few countries that provided significant direct monetary aid to families, which explains why we are within the economies with higher inflation this year in the face of liquidity that registered historical increases”. For Ogaz, the rest of the region, “given the diverse characteristics of their economies, the fiscal support was of lesser magnitude and aid such as the withdrawal of pension funds, as in our case, was not recorded.”
And San Martín adds that “with these levels of inflation, Chile is paying the consequences of excess liquidity derived from populist and poorly designed public policies, such as partial withdrawals from pension funds. It is not that liquidity hit Chile harder, it is simply that liquidity as a percentage of GDP was the highest in the region and the top 3 in the world during 2021″.
The expectation was that the peak in 12 months would be August, however, now that scenario is not clear. “The CPI for September will have two factors incorporated. First, the effect of the drops in gasoline during the last two weeks, however, this will not be enough to achieve a lower CPI than in previous months, due to the rise experienced in typical products this month”, comments Monge, and for this reason, “it expects a monthly rise of 1.2%, which would lead to an annual CPI of around 14.3%”. However, he does expect a slowdown in the coming months, since he sees a year-end closing of 12%.
San Martín forecasts a CPI of 1% for September and in twelve months it would reach a variation of around 13.7%, while Ogaz has an inflation of around 1% and 13.8% in its base scenario. “By the end of the year we estimate inflation to close around 13%”, he underlines.
The academic from the University of Chile, Alejandro Alarcón, puts another element for analysis. His focus is on the impact that the rise in public spending in 2023, which will be between 4% and 5%, would have on inflation. That factor for Alarcón would maintain inflationary pressures. For this year, meanwhile, he expects a close of 2022 with inflation around 13%.