Juan Luis Guerra used to say that "the cost of living goes up again, the peso that goes down can no longer be seen", in reference to the high inflation faced by the Dominican Republic at the end of the 80s and beginning of the 90s, which between 1988 and 1991 averaged almost 50% per year.. Although the sources of inflation can be diverse, in Latin America they are generally related to currency imbalances, high levels of fiscal spending and/or major devaluations.

The case of Chile in those years was not very different. However, the transition to democracy, the beginnings of an independent Central Bank and, above all, broad political agreements between the ruling party, the opposition and the unions, made it possible for the goal of reducing inflation to be achieved in an orderly, credible and sustainable manner. Today, 30 years later, the country enjoys a price stability that any of our neighbors (and even several OECD countries) would want. 

Most recently, after some higher than expected records, the CPI showed a variation of only 0.2% in February, compared to January. This surprised the market, which was expecting double that, and which had been somewhat startled by January's 0.7% (what would Juan Luis Guerra say in the 90s about a variation of 0.7%, he would jump on one foot!). Although our economy still has several indexation mechanisms, its evolution has allowed that higher inflation in the past does not necessarily mean higher inflation in the future. In other words, it could happen, but the causes would be different. 

To think that Chile would face high inflationary pressures during 2021 is only looking at part of the picture. It is true that some local stock failures, food and fuel price increases and some tariff adjustments could increase prices in the short term, but from a longer-term point of view we should not forget that the economy has just shown timid signs of recovery and that some markets, such as the labor market, are weak and would take longer to normalize.

That said, due to comparison base issues, year-on-year inflation could, by mid-year, increase and exceed 4.0%. But not to worry, since, once we enter the second half of the year, we should see a gradual normalization that will bring us back to the 3.0% target. That target that, during the 90s, for Juan Luis would have been a dream come true.