"Inflation was low thanks to the decline in flights in Alaska and Caribbean cruises.", wrote an auditor while I was being interviewed on the radio to comment on the February CPI. While it is understood that this is a caricature and not entirely false, I think it is important to explain, first, how the CPI is constructed and, second, how much certain specific products affect it.

The CPI consists of 303 products and services that represent the consumption habits of Chileans. Understanding that these habits are dynamic, the basket is renewed every five years and is constructed based on the Family Budget Survey, which is prepared by the Central Bank, which is then adjusted considering information from the National Accounts (since some consumption is underreported, especially alcoholic beverages and tobacco). For a product to be considered within the CPI basket, it must meet a series of methodological requirements, the two most relevant being that it must be included in household expenditures of at least four of the five income quintiles of the population and that it represents at least 0.02% of the annual budget. I find this extremely relevant, because sometimes the impression is given that the basket represents only the consumption of a few, or of specific groups, which is clearly not the case. 

Is the CPI basket my consumption basket? Or yours? Probably not, which is fine, because this statistic does not need to show whether my or your monthly expenditure has increased, but rather that of the average Chilean. Some will spend more on food, others more on travel, others more on fuel, etc., which does not mean that the data is "false." What's more, if you wanted to, all the information is available to construct your own CPI, changing the weights to ones that more closely resemble your budget. In fact, this is done to construct other underlying indices or, as in our case, to develop measurements of what is happening with the basic basket of goods, with high-demand goods, etc.

So, having clarified this point, we move on to the figure of contention. The CPI for February rose 0.3% compared to January, which was below expectations, which had risen to 0.8%. However, this figure does not break the inflationary trend of recent months, as has been noted. It does not take much digging to find the reasons: the sum of the negative impacts of package tours (-0.364 pp) and airfare (-0.181 pp) account for more than -0.5 pp in the final result. In other words, in a very rough calculation (and by no means a counterfactual), without these variations, the total index would have increased by 0.7% m/m. In fact, when we look at the CPI excluding volatile items, we see that it increased by exactly 0.7% m/m, reaching 6.5% compared to the same period last year. Additionally, an indicator that has been quite useful in illustrating these inflationary pressures is the diffusion index, which this time reached 64%. As in the previous month, this is the highest for any February since 2009.

If we add to the above cocktail the increases in commodity prices that have been brought about, in part, Russia's invasion of Ukraine, the situation does not improve substantially. In fact, just because of the increase in the price of oil (to US$120) we have increased our inflation projection for December by 0.8 pp (to 7.0% y/y), to which new adjustments could be added both for this and for food prices. For March, we project a 1.0% m/m increase, mainly due to the impact of education and food. 

Therefore, although the figure may seem low, it is not what it appears to be. As we have said on several occasions, it is necessary to conduct more in-depth analysis when drawing such important conclusions as those that were intended to be drawn. Inflation has not subsided and requires all the efforts of our institutions to control it, a task that falls not only to the Central Bank, but also to the newly appointed executive. 

Nathan Pincheira 

Chief Economist at Fynsa