After multiple negotiations, following the so-called "common minimum agreement", the government announced the payment of an emergency family income (IFE). Initially, it was to be for three months, starting in June, to which was added the payment of 50% of the amount for September. Beyond the micro characteristics of the disbursements, our interest in this opportunity is to be able to answer a question we constantly receive: will the greater liquidity available to households impact inflation?

For the above, a bit of history. Since August of last year, we have had 4 events in which household liquidity has increased significantly. This does not detract from the fact that there have been more disbursements to households by the government, but in terms of amount, we believe that the most significant have been the three "10% withdrawals" by the savings in the pension funds and, most recently, the payment of the IFE up to 100% of the households registered in the Social Household Registry (RSH). The first three withdrawals total, to date, more than US$50 billion, while the IFE payments would reach more than US$10 billion. 

The first withdrawal, to date, has been requested by almost 11 million members, 98.5% of whom have already received their payments, totaling more than US$21 billion, with an average withdrawal per member of $1,412,513. These total more than US$21 billion, with an average withdrawal per member of $1,412,513. The second withdrawal has received 8.5 million single requests with an average disbursement of $1,460,098 per member, which has meant an outflow of more than US$16 billion for the system. It is important to mention that, of the three, this has been the only one that has considered income for the payment of the global complementary tax. Finally, in the most recent one, a little more than 6 million people have requested the third withdrawal, which has mobilized more than US$12 billion, with an average payment of $1,460,215 per member.

The Central Bank, in the March IPoM, included a minute in which it breaks down the uses to which the funds from the first withdrawal were put. Thus, it is estimated that around US$3.7 billion was used for consumption, while the rest was used for other savings alternatives or precautionary liquidity. These statistics are of vital importance to us, since this amount has been the most transversal of the three. It is well known that, with each additional withdrawal, more members are left without a balance in their individual accounts. In fact, according to our estimates, today almost 5 million people experience this reality.

Studies by our team calculated that this increase in consumption caused by the first withdrawal had inflationary effects that reached approximately 0.4 - 0.5 pp in three months. In a very rustic account, then, almost 0.1 pp for every US$1 billion of consumption. Similar exercises carried out for the second and third withdrawals show much lower impacts, both because the profile of those who were able to access these withdrawals is different, and because the supply conditions have also normalized. 

However, we believe that the IFE does not have the conditions of a "fourth retreat". In fact, it looks a lot more like a first withdrawal version 2.0, since it would be targeted at a population with a high marginal propensity to consume, probably more affected by the effects of the pandemic and with a higher incidence of unemployment. Therefore, assuming that it would behave like a first pullback, but also assuming that supply conditions have more slack than during the third and fourth quarters of 2020, we increase our inflation estimate for the year from 3.5% to 3.9%. Decomposing, we believe the effects would be seen mainly during July, August and September. Thus, we have maintained our recommendation to overweight UF assets.

Nathan Pincheira 

Chief Economist of Fynsa