Electricity tariff adjustments and CPI impact

CHILE - In Brief 14 Jun 2024 by Igal Magendzo

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After the social unrest at the end of 2019, electricity rates to households were frozen. This freeze has resulted in a shortfall for the electricity companies of approx. $6 billion. Since October 2019, the electricity CPI has only increased by 1.8%, contrasting with the 25.8% rise in the headline CPI, a more than 40% increase in the exchange rate and significant price hikes for key inputs like coal and LNG. Starting this month, higher tariffs and debt re-liquidation will commence. The National Energy Commission has set the parameters for future rate calculations. The electricity CPI is based on bills between 200 and 250 kWh. Electricity rates account for 2.2% of the total CPI. Significant tariff increases are likely to have second-round effects, derived from production costs, wage adjustments, and inflation expectations. However, the calculation is complex, involving numerous parameters. Political factors may also influence the timing and extent of future adjustments. In other words, our estimates are subject to significant uncertainty. Our preliminary estimates are: Jul-24 Oct-24 Feb-25 Total Electricity CPI 23.0 18.5 11.6 62.6 CPI direct effect 0.51 0.41 0.26 1.4 2nd round effects 0 0 0.3 0.3 Total effect on CPI 0.51 0.41 0.56 1.7 Note: The tariff increases listed in the table may occur in the specified month or in the following months.