A rare equilibrium
With the monetary policy rate now at 4.5%, a level we consider broadly neutral, indicators point to an economy operating close to equilibrium. The main risks remain external, and recent data are consistent with this view. Beyond monthly volatility, activity appears to be at a stable but sluggish cruising speed. Consumption-related signals have been relatively strong. The key question now is how permanent this strength will be. Manufacturing tells a less supportive story. Dynamics point to some narrowing in the current account deficit, consistent with an economy operating at close to equilibrium.
Labor market conditions have lost momentum, fading from the more positive midyear signals. In any case, the real wage bill continues to expand by around 3%, providing moderate support to household consumption. Unemployment stood broadly unchanged from the previous period, while employment growth slowed. Wage dynamics have also softened.
November’s CPI reinforced the view that headline inflation remains close to target. The print was heavily influenced by volatile and idiosyncratic items. New seasonality, together with higher volatility across several items, continues to blur the informational content of both headline and core inflation readings. Core inflation measures remain broadly stable and close to target, but services inflation continues to stand out for its persistence. The BCCH has revised the short-term forecast down, effectively bringing forward convergence to 3% by two quarters.
The Central Bank delivered a widely-expected 25 bp cut to the monetary policy rate (TPM). The Bank’s communiqué signaled a shift in emphasis, from normalization toward fine-tuning at the margin. The absence of explicit guidance reinforces a data-dependent approach, and leaves the direction of the next move deliberately open. The BCCH’s broader macro assessment remains balanced. The BCCH no longer emphasizes inflation risks. But nor is there a signal of further cuts ahead, suggesting that the bar for additional easing has risen. The BCCH appears to have moved from a “cautious, no-rush, almost done” stance to closer to a conditional, restrained and data-driven fine-tuning.
Though president-elect José Antonio Kast won’t assume office until March 11, the contours of his presidency are beginning to emerge. Via rapid domestic and international signaling, Kast has sought to reassure investors, to court moderates and to redefine Chile’s foreign policy orientation. Early trips to Argentina, Peru and Ecuador, accompanied by business leaders and economic advisers, underscore a pivot toward conservative, pro-market and law-and-order alliances, while linking foreign policy more directly to the preeminent domestic concerns of security and migration. At home, Kast has balanced gestures of institutional continuity with promises of change. For now, there is little substance, but the transition is marked by political performance and confidence-building.
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