Cherries, tourists, tariffs and expectations
A breeze of optimism has swept across Chile. According to the national accounts, GDP grew by 2.6% in 2024. Still, we are not revising our baseline 2% GDP growth forecast for 2025 just yet. Several factors prompt caution. First, statistical distortions have been at work. Second, some temporary drivers stimulated activity. Activity indicators softened in February, following a stronger-than-expected January. Against this backdrop, we find the Central Bank’s narrative—particularly regarding Q4—overly optimistic.
Labor market data for the November–January rolling quarter were moderately favorable, and may be reflecting the recent pickup in economic activity. Since July 2024, real wage variation has consistently remained above 3%. That said, seasonally-adjusted real wages have shown little momentum in recent months.
After December’s downside surprise and January 2025’s upside miss, February’s CPI brought a more encouraging signal: a somewhat broad-based moderation. Twelve-month CPI growth dropped from 4.9% to 4.7%. Electricity contributed around 1.2 pp to the 12-month CPI increase. We continue to expect 12-month headline inflation to stay between 4% and 5% through at least mid-year.
The March IPOM once again leaves an ambiguous impression. As has become common, its narrative lacks clarity on the direction of monetary policy. The center of the rate corridor —the midpoint of the 33% confidence interval— is consistent with two 25bp cuts in 2025 (September and December) and two additional cuts in April and July 2026. The IPOM reinforces our view that inflation expectations are the main reason behind the Central Bank’s cautious tone, even though the report itself barely mentions them. Notably, the IPOM fails to clearly identify new sources of inflationary pressure. In this context, we maintain our baseline scenario of two additional 25bp cuts, likely towards the end of the first half of the year or the beginning of the second.
U.S. President Donald Trump’s imposition of broad global tariffs has sparked political and economic concerns in Chile. Although copper is exempt (for now), the 10% tariff raises uncertainty, especially in an election year. President Gabriel Boric, currently visiting India, has expressed strong disapproval of Trump's measures, and has emphasized Chile's desire for diversified and independent international partnerships. But Boric’s rhetoric may complicate potential negotiations with the United States, and opposition figures like Evelyn Matthei favor negotiation. The tariffs, along with a slowdown in global trade, will impact Chile’s economy, as well as the upcoming election.
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