A fruit and vegetable vendor at Vega Central, the most popular market in Santiago, Chile, on July 1. Sofia Yanjari
The cost of living in Chile continues to rise and entire generations that have aged since the 1990s are beginning to feel the effects of inflation, which has been steadily controlled for the past three decades. The consumer price index (CPI) for July rose more-than-expected by -1.4%, as reported by the National Institute for Statistics, INE, on Monday, taking annual inflation to 13.1%, the highest index since March 1994. Prices , which have seen the biggest increases in transportation – involving fuel and lubricants – and food and non-alcoholic beverages, with the cost of meat and fruit increasing significantly.
It is the scenario in which the referendum on a new constitution takes place in four weeks, on September 4th, that unsettles the majority of citizens. According to various polls, those who oppose the constitutional proposal have a choice over those who support it: 47% versus 37%, according to the Cadem poll published on Sunday. The complex economic situation and the public security crisis, as well as the fact that the public sees a strong correlation between the government of Gabriel Boric and the new constitution, make the approval option difficult for public opinion, according to experts. These days, the Executive has begun payments of the Winter Loan of about $130, which will reach about 7.5 million people (Chile has a population of 19 million).
“We are in stagflation, although it sounds terrible,” economist and former central bank governor Roberto Zahler told Diario Financiero, citing a falling economy and double-digit inflation. “All of this suggests that we will grow at 2% this year, which is not bad growth, but next year we will most likely have a contraction in GDP in the context of still very high inflation,” said Zahler. . . For Finance Minister Mario Marcel, however, this is not a process of stagflation. According to the government’s head of public finance, the higher-than-expected rise in inflation in July is largely due to the dollar’s rise against the Chilean peso over the past month, which explains the rise in fuel prices.
The Chilean economy is heavily indexed. A document by economist José Pablo Arellano explains that after a sharp increase in inflation, the Unidad de Fomento -UF- was founded in January 1967 and that “in the second half of the 1970s, when inflation remained above 100% for several For years, the issuance of financial instruments denominated in UF has made the UF a commodity of everyday use in the country,” says the researcher. “This is a Chilean innovation that has been very successful and will most likely remain in use for many years to come,” he says of the UF, which is growing by the hour after that spike in inflation in July. As it is a measure indexed to inflation, its variation depends on the data that the CPI releases monthly. According to central bank regulations, the UF is readjusted daily from the 10th of each month to the 9th of the following month, Emol reports.
In UF, long-term loans such as mortgages are quantified. With each unit set to rise by more than half a dollar over the next month, it’s a major blow to Chilean families. However, salaries are rarely expressed in UF.
The central bank has been raising interest rates one by one in a bid to curb inflation, and experts expect it to raise them further in the coming meetings. “Given local economic developments, we expect fresh hikes in the monetary policy interest rate (MPR), which should be at levels between 10.5% and 11% at the September and October meetings,” Euro-America economist Martina Ogaz told PULSO newspaper from La Tercera.
Subscribe to the EL PAÍS América newsletter here and receive all the latest regulatory keys in the region.