The INE released the Consumer Price Index for September. You have likely already read that it rose 1.2% compared to August, marking the highest monthly change for this indicator since June 2008. As a result, compared to last year, the basket of 303 products shows a 5.3% increase, the largest year-over-year rise since November 2014.

It seems to me that, regardless of the causes, this data is concerning. You don’t have to be an expert to understand that this may be one of the economic phenomena that most affects the population. We may not know much about the IMACEC, long-term bonds, or the Federal Reserve rate, but when it comes to inflation… boy, do we know. The general rise in prices immediately makes us poorer because, with the same income, we can afford fewer goods and services (both now and in the future), directly reducing our well-being and that of our families. At a time when the COVID-19 pandemic is receding, but its health and economic effects will take much longer to normalize, this factor is troubling.

Unsurprisingly, some want to shift the debate to the causes of this inflation (as if its consequences for people were any different), milking two or three factors for all they’re worth to justify continuing irresponsible public policies. It is absolutely true that part of this inflation is imported. The rise in energy prices has been a significant factor not only in Chile but also worldwide. Increased demand for crude oil resulting from the lifting of lockdown measures in developed economies, coupled with somewhat harsher winters in the Northern Hemisphere, has driven the price of a barrel of oil above US$80. Additionally, supply chains are far from returning to normal, which continues to put pressure on the prices of certain products, such as automobiles. A look at the recently published CPI confirms this: energy costs rose 1.0% from the previous month, accumulating a 15.5% increase over the past year, while prices for new and used cars have risen 14% and 35%, respectively, compared to 2020.

However, ignoring the local effects is like refusing to talk about the elephant in the room. Since the start of the pandemic, fiscal policies and withdrawals from AFP pension funds have totaled more than US$80 billion—slightly more than the nation’s entire budget for 2022 (still in draft form). Additionally, the exchange rate has depreciated against multiple currencies, not just against the dollar as in the past. This, as the Central Bank politely puts it, is due to idiosyncratic factors. The impact has been so significant that neither the Treasury’s proceeds (from foreign investments and sales of sovereign wealth funds) nor those of the AFPs (from the three rounds of fund withdrawals), nor the 125-basis-point hike in the TPM, have been able to reverse the situation. Am I cherry-picking? Consider this: of the year-over-year change in the CPI, 35% has been driven by services (more closely linked to local factors), versus 24% by goods (more closely linked to external factors).

Therefore, inflation is a more complex phenomenon than some would have us believe, with multidimensional causes. However, ignoring the local impact resulting from increased household liquidity is an intellectual dishonesty that, at the end of the day, will end up making us poorer.

Nathan Pincheira 

Chief Economist at FYNSA