It was indicated that inflation in the southern country would only ease during the second half of 2025, to reach the target of 3% at the beginning of 2026.

This Wednesday, the Central Bank of Chile published its latest Monetary Policy Report (MPR) for 2024, with some economic ranges similar to the previous report (September); and with emphasis on the fact that inflation is “higher than what was anticipated a few months ago.”

It was indicated that it would only decrease during the second half of 2025, to reach the target of 3% at the beginning of 2026.

The issuing institute also indicated that activity was returning to growth levels this year.

"After a dynamic first quarter, activity has been evolving more steadily, with growth for the year estimated at 2.3%, which is within the economy's capacity," the report said.

The Bank estimated that activity will grow between 1.5 and 2.5% in 2025 and 2026. And while the range is similar to that of the September IPoM, the composition of the product considers a somewhat smaller boost from domestic demand and a greater one from mining.

INFLATION

The IPoM highlighted that inflation is higher than what was anticipated a few months ago.

“The annual variation of the Consumer Price Index (CPI) stood at 4.2% in November and is expected to close the year at 4.8%, then fluctuate around 5% during the first half of 2025,” he said.

This higher inflationary trajectory in the short term responds to a combination of cost factors.

On the one hand, there is the global appreciation of the dollar, which has raised the exchange rate, caused by the increase in global uncertainty.

On the other hand, there is the rise in local labor costs.

"These shocks have occurred simultaneously, which has contributed to the narrowing of companies' operating margins and led to a higher pass-through to final prices than previously expected," the Central Bank said.

In the medium term, he said, "cost pressures will tend to ease and the evolution of inflation will be determined by the behavior of domestic demand, in particular by a lower performance of household consumption."

The latter remained rather “flat” in the second and third quarters of this year, amid “low dynamism in job creation, the real depreciation of the peso and expectations that remain pessimistic.”

Finally, in the IPoM the issuing institute indicated that consumption will grow less than what was estimated in September.

“The balance of risks for inflation is skewed upwards in the short term, which highlights the need for caution. This means that the Board will accumulate information regarding the performance of the economy to assess the opportunity to reduce the monetary policy rate (TPM) in the coming quarters,” he said.

TPM

Yesterday, Tuesday, and in line with market expectations and unanimously, the Chilean Central Bank Council decided to lower the Monetary Policy Rate (TPM) by 25 basis points, from 5.25% to 5%.

This was the last monetary policy decision of the year, and the US Federal Reserve is also expected to make a decision on interest rates.

One of the aspects that was highlighted when this information was released was that the “short-term inflation outlook has become more challenging, as a result of greater cost pressures that, in the central projection scenario of the Monetary Policy Report (IPoM) for December, will cause inflation to fluctuate around 5%” in the first half of next year.