Business & Economy

Specter of inflation looms over Chile

By Maria M.Mur

Santiago, May 7 (EFE).- Whether at the market, on the metro, or in an elevator, the invariable topic of conversation in Chile is inflation, though to have been banished decades ago but now back with a vengeance amid the economic disruptions caused by the Covid-19 pandemic and the war in Ukraine.

Jose Gonzalez, who sells stuffed Italian zucchini at a market in Santiago’s Ñuñoa neighborhood, said that he has to change the prices on his sign every three-to-four days to keep pace with the rising cost of inputs.

“They have doubled in price in the last few months,” he told Efe. “People buy less and we merchants lose too much product (to spoilage).”

From the perspective of a shopper, pensioner Magali Espinoza said that does several circuits of the market to find the cheapest vegetables.

“I refuse to pay these scandalous prices,” she told Efe.

Until recently, it looked as if Chile would be spared the double-digit inflation afflicting other Latin American countries, but the consumer price index rose 7.1 percent over the course of 2021 to reach its highest level in 14 years.

And the increase was even greater for the 12 months ending April 30, coming in at 10.5 percent, a rate of inflation last seen here in 1994.

The biggest price hikes are for essentials such as food and fuel, making for a major impact on the poor, Aldo Madariaga, a political science professor at Diego Portales University, told Efe.

“Inflation is a relatively new phenomenon for many people,” he said.

O’Higgins State University’s Pablo Peña said that one of the most pernicious effects of inflation is “the uncertainty it generates in the various economic actors, who don’t know how much more prices are going to rise and find it hard to make purchasing decisions.”

Experts say the main cause is supply-chain stresses and spikes in global prices for food, fertilizer, and fuel due to the Russian invasion of Ukraine.

Russia is a leading producer of oil and gas and fertilizers and both countries export large quantities of grain.

Yet developments inside also play a role, according to those experts, who say that last year’s 11.7 percent growth in gross domestic product – the largest in four decades – is a sign of “overheating” driven by consumer spending.

People found themselves with more money in their pockets thanks to pandemic relief payments and measures that allowed Chileans to tap into retirement accounts without paying penalties.

Chile’s Central Bank has reacted to the inflation surge by boosting its benchmark interest rate from a historic low of 0.5 percent to 8.25 percent in a matter of months.

The center-left government of President Gabriel Boric, who took office in March, has taken steps to contain the rise in fuel prices and help low-income households with their grocery bills.

Inflation was a chronic problem in Chile for more than a century, from the aftermath of the 1879-1884 War of the Pacific until around 1994, four years into the restoration of democracy following the 1973-1990 Pinochet dictatorship, Peña said.

What makes the current bout of inflation especially problematic is that it coincides with a 1.8 percent decline in median real wages.

As another shopper at the Ñuñoa market, Hector Espinoza, reminded Efe, “the prices rise by elevator and the salaries by the stairs.” EFE

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