Fynsa
When there is evidence of any abnormal behavior —such as a symptom of an illness— the fact that the data appears normal is, in fact, abnormal. I borrowed that line from Gregory House, who was referring to the fact that blood tests, X-rays, MRIs, etc., that showed nothing unusual—in a pathological context—were precisely the proof that something wasn’t right: “normal is not normal”. So I’ll never forget that, I have a magnet with that phrase stuck to my fridge. Seriously.
I'm bringing up this quote because it was what caught my attention the most regarding the latest Minutes of the Monetary Policy Meeting. Recall that on that occasion, the Council decided to raise the rate by 75 basis points, bringing it to 9.75%, the highest level since the nominalization of monetary policy in the early 2000s. Our analysis concluded that a much higher monetary policy rate would not necessarily have a significant impact on inflation levels, since a large part (if not all) of the current price variation was explained by external or supply-side factors—factors against which, according to the literature, monetary policy has little or no effect. Since this inflation stems from an eminently transitory source, we have no choice but to “let this inflation run its course,” ensure that expectations do not become unanchored, and hope that no second-round effects occur. That is the normal course of events.
However, what the Central Bank is telling us this time is that "normal" is not normal. Furthermore, it notes that the Chilean economy is in such a state of imbalance that its response cannot be the one typically used in these types of situations. While we may have certain reservations about that assessment, it’s hard not to agree with the response it implies. It is essentially this the explanation for the shift in the statement’s tone, the upward revision of the upper end of market estimates, and the renewed suggestion that further increases will be necessary in the coming months.
The above explanation does not rule out the possibility that it would have been difficult to reach that conclusion based solely on one additional month of data, since the imbalances have been present for quite some time and, based on that same information, it had already been suggested that the cycle of price increases was nearing its end. In short, further evidence that what is considered normal today is not normal.
So what's next? Nothing very different from what we projected after the decision: There will be further increases at the September and October meetings, bringing the TPM to 11%, which is currently at the upper end of the corridor. A level that at one point seemed crazy to us—representing the most contractionary rate in recent decades (yes, even more so than during the Asian financial crisis)—in a global and national context that is far from normal. Although, who knows…
