Inflation has evolved in line with projections in the December IPoM, although it has remained at high levels and with important risks regarding its future evolution. Activity has been more dynamic than expected, largely due to the boost from exports. Meanwhile, the international outlook has become significantly more uncertain due to the resurgence of geopolitical tensions, especially in commercial matters. This has intensified doubts about global growth, particularly in the United States, leading to a decoupling of the American economy’s financial markets from the rest of the world and a significant depreciation of the dollar. Pending further information, the impact of the deterioration of external conditions on the Chilean economy is expected to be limited. Nevertheless, uncertainty has increased considerably. In the immediate future, the local economy will continue to reflect the effects of the higher starting point of the last few months, in addition to a more positive evolution of some spending fundamentals. For this year, the growth range is raised to 1.75% to 2.75% and the expected growth for 2026 is maintained between 1.5% and 2.5%. Inflation is still projected to converge to 3% by early 2026, once the comparison base effects of cost increases are left behind. The Board will assess the next movements of the Monetary Policy Rate (MPR) bearing in mind the evolution of the macroeconomic scenario and its implications for the inflationary convergence.

Inflation has evolved in line with estimates, hitting 4.7% annually in February (4.2% in November), but is still at high levels. The influence of the volatile energy component in this result deserves special mention. This includes the expected readjustment of electricity rates and higher figures for fuel items, given the depreciation of the peso and the rise in external prices of these products in previous months. Core inflation (which excludes volatile items) has evolved somewhat below expectations but remains close to 4% annually (figure 1).

Data for the end of 2024 and beginning of 2025 show a more dynamic economy than expected. GDP grew 2.6% last year, exceeding forecasts in the previous IPoM (2.3%). It is worth highlighting the impulse from several export-related sectors, mainly agriculture and livestock and wholesale trade —especially due to cherry production and shipments during its season—, the more positive evolution of the food industry, and the boost from the greater number of foreign tourists in retail trade and some services. All this has underpinned the performance of foreign shipments and the current account, which in 2024 recorded a deficit of 1.5% of GDP (figure 2).

As expected, both private consumption and gross fixed capital formation (GFCF) expanded in the latter part of 2024, on the back of improvements in several of their fundamentals (figure 3).

Business and household expectations have rebounded. The labor market continues to show limited slack, in a context in which different sources show an increase in employment at the margin and real annual wage growth continues to be above the average of the last decade. In turn, the latest survey by the Capital Goods Corporation (CBC) reinforced the outlook for higher investment amounts in large-scale projects in the short term. In any case, there is still an important difference in the dynamism of investment between the mining sector and the rest of the economy (figure 4).

The external outlook has become more complex, with uncertainty rising sharply. The main developments are related to the escalation of geopolitical tensions. The announcement of tariffs by the U.S. administration and the response of the affected countries have dominated the agenda. The unfolding military conflicts have also drawn significant attention (figure 5).

Concerns about global growth have increased, especially in the United States, where services inflation continues to show persistence. Although the data for the end of 2024 and the beginning of 2025 maintain the trends of previous quarters in that economy, agents have reduced their growth projections (figure 6).

Meanwhile, the inflation expectations have risen, in line with the higher costs brought about by the trade war. This combination of lower growth and higher inflationary pressures creates a complex scenario for the Federal Reserve, which in its recent meetings has maintained the federal funds rate (figure 7).

Risk perception has increased in global financial markets, although with markedly different patterns compared to recent years. This is partly due to the fact that the economic repercussions of the recent tariff measures are, for the time being, estimated to weigh more in the United States than in other economies. Thus, in the former, doubts about future growth and the preference for safe assets have led to a fall in stock markets and a drop in long-term interest rates. In other economies, reactions have been mixed. In Europe, there has been a rise in long rates and stock markets. In China, stock market returns have also risen significantly. All this against a background of higher expectations for fiscal spending. These developments have caused a global weakening of the dollar (figure 8).

In the local financial market, the strengthening of the peso and the positive performance of the stock market stand out. At the statistical cut-off of this IPoM, the peso/dollar parity has decreased by just over 4% with respect to the previous statistical cut-off, although in the meantime it had a substantial increase that placed it above $1.000 during several days in January. In addition to the behavior of the global dollar, this has been affected by the rise in the copper price and the changes in the domestic and international monetary policy outlook. In turn, the IPSA has reached record highs, accumulating gains of slightly more than 10% with respect to the close of 2024.

Projections

The projections for activity and demand are revised moderately upward from the December IPoM. The forecast growth range for this year is raised to 1.75%-2.75%. For 2026 and 2027, it is estimated between 1.5% and 2.5%, all figures around the Chilean economy’s medium-term trend growth (figure 9).

This projection considers that the greater momentum of recent months —especially in export sectors— leave a higher starting point for the short term. Plus, the improvement in some of the aforementioned domestic spending fundamentals, such as business and household expectations and the CBC survey.

On the other hand, the deterioration of the external scenario is expected to have limited effects on local activity, focused more on the medium term. In the central scenario, the expected growth of Chile’s trading partners is reduced, especially for 2026. The biggest correction is seen in the United States, which affects the expected expansion of Chilean exports by that year. For 2025, the adjustment is smaller due to the higher starting point left by China’s activity data at the end of 2024 (figure 10). However, if the risk scenarios do materialize, their effects would be greater, depending on how the transmission channels behave in both the commercial and financial spheres. In any case, the doubts surrounding these scenarios are relevant. In the immediate term, there have even been favorable movements in some variables, such as our trading partners.

Compared to the December IPoM, the current central scenario contemplates somewhat faster growth rates for household consumption and GFCF in 2025 and maintains the estimates for 2026. For the former, growth of 2% is expected in both years, while investment is expected to grow by 3.7% and 2.2%, respectively. Projections for 2027 are at 2% and 2.9% for each of these components of private spending (figure 11).

The central scenario considers fiscal spending similar to that projected in December. For 2025, it considers the approved Budget Law, including the expenditure cut presented in the latest Public Finances Report. Thereafter, it considers the committed expenditures reported in said Report.

Inflation forecast continues to anticipate that it will converge to the 3% target at the beginning of 2026. This assumes that, over the projection horizon, the real exchange rate (RER) will maintain the levels prevailing at the statistical cut-off of this IPoM. Added to this is the impact of the recent decline in international fuel prices on the volatile component. This is partly offset by a higher projection for services inflation and somewhat higher demand.

Annual inflation will decline rapidly during the second half of 2025 and early 2026, considering the high bases of comparison resulting from higher electricity prices and the depreciation of the peso in the latter part of 2024. The CPI variation is expected to end the first half of this year above 4.5% annually, falling to 3.8% in December and stand around 3% in the first quarter of 2026. From then on, it will hover around the target. Non-volatile inflation will also be around 3% at the beginning of 2026 (figure 12).

Monetary Policy

Although in general terms the macroeconomic scenario has evolved as expected, the overall background information at hand points to an inflationary outlook that continues to face significant risks, stressing the need for caution. This considers the simultaneous rise in different cost pressures of recent months, in a scenario where various margin measures point to a reduction during 2024. In any case, some factors have eased lately, such as the aforementioned appreciation of the peso and the drop in external fuel prices. Against this backdrop, some indicators of two-year inflation expectations remain above 3%.

Meanwhile, the risk configuration facing domestic activity and spending has been changing. Scenarios with a less favorable evolution of some internal forces and their negative effects on the local economy have become less likely. Overall, the Board will remain alert to the possibility of more disruptive events at the international level and their economic and financial impacts.

El Consejo evaluará los próximos movimientos de la TPM teniendo presente la evolución del escenario macroeconómico y sus implicancias para la convergencia inflacionaria. Además, reafirma su compromiso de conducir la política monetaria con flexibilidad, de manera que la inflación proyectada se ubique en 3% en el horizonte de dos años.

The Board will assess the next movements of the MPR bearing in mind the evolution of the macroeconomic scenario and its implications for the inflationary convergence. Furthermore, the Board reaffirms its commitment of conducting monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.

The sensitivity scenario at the upper bound of the MPR corridor represents inflation remaining high for longer. This could be the case in the event that inflationary persistence exceeds its historical patterns and domestic demand grows more than expected. This would result in a greater pass-through of costs to prices, considering also the aforementioned compression of business margins.

On the lower bound, a scenario could materialize in which the negative impact of tariff measures and greater global uncertainty would be accentuated. A deepening of the trade conflict and a greater impact through financial channels cannot be ruled out. This could dampen expectations and spending by firms and households, significantly reducing inflationary pressures, which would require implementing faster cuts to the MPR (figure 13).

Pending further information, the central scenario of this IPoM considers that the impacts of changes in the international scenario on the Chilean economy are still contained. However, there are risk scenarios in which these effects could be considerably greater. A major change with respect to previous situations is that events with significantly detrimental consequences in the world economy and in Chile have increased their probability of occurrence. The effects would be particularly harmful if a scenario of greater trade tensions were combined with more significant disruptions in the framework of the political alliances that have characterized developed countries since World War II, raising the probability of military conflicts. The more severe financial repercussions of episodes like these are added. In such situations, monetary policy would have to make substantial adjustments to support the convergence of inflation to the target.