Central Bank of Chile warns that inflation may be “more persistent”

The president of the Central Bank of Chile, Rosanna Costa, warned this week that the inflationary phenomenon that the country is experiencing could be “more persistent” than expected, and that this is the entity’s “main concern”. .

“Our country faces multiple and important challenges. One of the most relevant from the macroeconomic point of view is to reduce inflation, a problem that affects all of us strongly”, Costa told the Senate during the presentation of the Monetary Policy Report (IPoM) of September.

The report predicted that the Consumer Price Index (CPI) would close at , 1%, about two percentage points higher than projected in June, due to price volatility and the devaluation of the Chilean peso.

“The risk of observing a much more persistent inflationary phenomenon is a concern of the Council, as it may lead to further monetary tightening, outside the upper bound of the corridor” of the Monetary Policy Rate (MPR).

In this In this context, he stressed that this risk is “particularly relevant” in a scenario in which inflation has risen steadily in recent quarters and inflation estimates remain above 3% over two years.

” As the inflationary phenomenon becomes more persistent, price stabilization becomes more difficult and expensive,” he said.

The weak future prospects for the Chilean economy had already emerged on Tuesday. (6), after the Economic Council increased the base rate by 100 basis points and fixed it at 10,75%.

Projected inflation for 2023 is estimated to be almost one percentage point higher than forecast in June, with an average of 6.1%.

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“Prolonging the current inflationary situation would be highly expensive, because as households and businesses begin to get used to and anticipate higher rates of increase in prices on a permanent basis, the costs of reducing inflation – reflected in the ability to create jobs, raise wages and the general well-being – increase substantially,” he said.

“Bring inflation back to levels that do not seriously affect the population, especially the most vulnerable, necessarily involves the re-establishment of macroeconomic balances and, in this case, what is needed is a reduction in the level of activity and demand”, he added.

In terms of growth, the report estimates that the economy will grow between 1,75% and 2,20% in 2022, with private consumption expanding up by 1.4%, after a record increase of more than 25% in 2021.

Investment will contract by 3.3%, with declines in both machinery and equipment and construction and works.

This downward trend will continue into 2023, according to the report , and will be reversed in 2024, when GDP growth is expected between 2,25 % and 3,25 %.

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