The Central Bank (BC) published on Wednesday morning the Monetary Policy Report (IPoM) corresponding to March 2023. In the document, the BC says that inflation “remains high” and projects that the Consumer Price Index (CPI) will close 2023 with 4.6% annually.
The issuing entity indicated that although the annual variation of the CPI fell to 11.9% in February, it is still well above the target of 3%. Also, that the underlying part of the CPI is around 11% annually for some time, accumulating a significant surprise in recent months. Among the reasons behind this phenomenon, the report indicates that the speed of adjustment of the economy has been lower than expected.
In turn, the BC pointed out that, despite the better performance of early 2023, the economy will continue with its adjustment process in the coming quarters. The global economic landscape has become more complex in recent weeks. As a result, the Chilean economy will be affected by lower external demand and tighter global financial conditions.
However, the current scenario is associated with a higher degree of uncertainty than usual. On the one hand, it highlights the risk of a more abrupt deterioration of the external scenario, with greater implications for Chile. On the other hand, the slow decline in domestic consumption could result in more complex inflationary dynamics.
CPI of 4.6% at the end of the year
In the report, the Central Bank projected that, in the central scenario, total inflation will continue to decline in the coming quarters and converge to the 3% target in the latter part of 2024. Inflation will end 2023 at 4.6% per year, a figure higher than that forecast in the previous IPoM.
The correction is due to the higher levels of inflation in recent months, particularly its core component, the slower speed of adjustment of consumption and an activity gap that closes later than expected.
In this scenario, core inflation exceeds the previous estimate and will reach annual variations of the order of 3% only towards the end of the projection horizon, which on this occasion corresponds to the first quarter of 2025.
The IPoM highlights that the convergence of inflation to the 3% target continues to consider that the economy must adjust the high levels of spending it reached in 2021 and 2022.
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