Andeans

Research evidence excerpt

Andeans

mestic demand continues to outpace output,

0.3%3m/3m saar through May, while ex.mining activity stood while the labor market remains tight.

at 1.1%3m/3m saar. On convergence, Villar reiterated that the baseline scenario

Household consumption appears to have weathered the 2Q sees headline inflation at 4% by end-2027 and returning to the

gasoline shock better than we had anticipated. In our view, 3% target in 2028, underscoring the role of monetary policy

this remains the key question for assessing second quarter lags. Asked about proximity to the terminal level, he repeated

activity and the monetary policy outlook. Following the gaso- the statement’s guidance that future decisions will remain

line price shock in late March, commerce posted a modest data-dependent, pointing in particular to external conditions,

rebound in May, services were broadly flat and retail sales fiscal developments, and drivers of domestic demand.

also increased. Despite still soft labor market conditions, we Figure 2: BanRep monetary policy rate

see scope for consumption to regain momentum in 3Q as %, dotted line is BanRep neutral real rate estimate*

declining gasoline prices provide relief to household purchas- 14 Nominal policy rate

ing power. 12 Ex-ante real rate

10 Monetary stance

Figure 1: Chile economic activity 8

Index, Feb 2020=100, sa 6

125 COVID-19 Ex.mining 4

Social Mining 2

115 unrest 0

-2

105 -4

05 07 09 11 13 15 17 19 21 23 25 27

95 Source: BanRep, DANE and J.P. Morgan We estimate neutral at 4.0%, 100bp higher

85 Looking ahead, firm labor market conditions suggest con-

sumption will remain resilient, adding to persistence in core

Mar 16 Mar 18 Mar 20 Mar 22 Mar 24 Mar 26 inflation. Combined with the risk of a strong El Niño pushing

Source CBC and J.P.