Chile enters the club of countries with double-digit inflation

Interior of a supermarket in Santiago de Chile. RODRIGO GARRIDO (Reuters)

Inflation in Chile is skyrocketing.

The rise of 1.4% recorded in April, and released last week by the National Institute of Statistics (INE), places the South American country on the list of the 25 countries in the world that have two-digit year-on-year rise in their CPI.

The world podium is held by a Latin American country, Venezuela, with 222%, the only one with three digits.

The next country in the region is Argentina, in fourth place, with 58%, followed by Brazil (12.1%) and Paraguay (11.8%).

Chile, with 10.5% year-on-year inflation, is inaugurated as a member of the ranking prepared by the

The current Chilean inflation is the highest since 1994. And it is in tune with the rises registered throughout the world after the Russian invasion of Ukraine.

International pressure on food and fuel prices has been transferred to the Chilean domestic market.

The category “food and non-alcoholic beverages” rose 2.3% in April, almost one point above the monthly average.

The price of gasoline, meanwhile, rose 3.3% last month, 10.2% since January and 30.3% year-on-year.

Chile is a net importer of crude oil and gas.

But not only the international market explains the rise in prices in Chile.

The 7.2% inflation recorded in 2021 was already the highest in 14 years.

The extraordinary aid that the Government gave to families affected by the pandemic and three early withdrawals from private pension funds flooded the market with pesos.

The Chilean economy grew 11.4% in 2021, a record figure, driven by consumption.

The strategy, however, now takes its toll on the most stable country in the region and an example of economic rationality.

The Central Bank responded to inflationary pressure with an unprecedented rise in the reference interest rate, which went from 7% to 8.25% in a single day, when only two years ago it was at 0.5%.

The intention is to suck up the excess pesos that were going to end up for consumption and thus cool down the economy.

Economy Minister Nicolás Grau said at the beginning of this month that he expects the second semester to be better than the first in terms of inflation.

“I would hope that the whole issue of the war will be toned down”, but “more important than that is what the Central Bank does by raising the interest rate, which takes effect at least six months after its implementation.

So in the second semester we are going to start to see the effects of these policies,” he said.

The Government of Gabriel Boric has opted for fiscal prudence and high rates to avoid a spike in the CPI that becomes uncontrollable.

At the same time, it intends to redirect social aid towards the most vulnerable sectors.

“We are making a set of policies that what they do is stabilize the prices in which the Government has some greater control, for example, the prices of regulated transport.

And we are also processing in Congress an increase of more than 40% of family allowances and the Single Family Subsidy precisely so that these families can better cover the rise in inflation, "explained Grau.

Boric's government announced on April 7 an "economic recovery plan" for 3.7 billion dollars.

The bill involves a rise in the minimum wage to the equivalent of 500 dollars;

the freezing of transport prices;

a tax reform that raises revenue to 5% of GDP by 2026 and another twenty measures aimed at generating jobs and strengthening social assistance.

The Minister of Finance, Mario Marcel, said then that "the plan will not alter the fiscal balances that are scheduled for this year (...) and it will certainly not affect inflation."

“Rather, it will help compensate the families most affected by inflation,” he assured.

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