Monetary Policy Report (IPoM)

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Monetary Policy Report December 2024

Informe de Política monetaria

Inflation is above forecasts of a few months ago. The annual change in the CPI stood at 4.2% in November and is expected to close the year at 4.8%, to then fluctuate around 5% during the first half of 2025. This higher inflationary trajectory in the short term responds to a mix of cost factors. On the one hand, there is the global appreciation of the dollar —which has raised the exchange rate—, caused by increased uncertainty in the world. On the other hand, there is the rise in domestic labor costs. These shocks have occurred simultaneously, which has contributed to the narrowing of firms’ operating margins and leads to a pass-through to final prices higher than previously anticipated. In the medium term, cost pressures will tend to ease, and the evolution of inflation will be determined by the behavior of domestic demand, particularly by a lower performance of household consumption. This remained rather flat in the second and third quarters of the year, amid the low dynamism in job creation, the real depreciation of the peso and still pessimistic expectations. The convergence of inflation to the target will not be very different from what was previously estimated, with forecasts for activity that do not have major changes, but with consumption that will grow less than what was considered in September. The risk balance for inflation is biased upward in the short term, so caution is most needed. This means that the Board will steadily accumulate information regarding the progress of the economy in order to assess the timing for monetary policy report (MPR) cuts in the coming quarters.

Monetary Policy Report December 2024

What does this MP Report tell us?

Inflation is above the Central Bank’s 3% target and is expected to rise further in the coming months.

Inflation is above the Central Bank’s 3% target and is expected to rise further in the coming months.

However, inflation is expected to begin to decline in the second half of next year, reaching the 3% target by early 2026.

However, inflation is expected to begin to decline in the second half of next year, reaching the 3% target by early 2026.

The main risks facing the Chilean economy come from abroad, mostly associated with greater uncertainty in the world.

The main risks facing the Chilean economy come from abroad, mostly associated with greater uncertainty in the world.

The Central Bank will continue to steer the monetary policy rate with the objective of ensuring that inflation converges to its 3% target.

The Central Bank will continue to steer the monetary policy rate with the objective of ensuring that inflation converges to its 3% target.

Inflation is above the Central Bank’s 3% target and is expected to rise further in the coming months.

Inflation is above the Central Bank’s 3% target and is expected to rise further in the coming months.

  • As of November, headline inflation was 4.2%, above the forecast in last September’s IPoM.
  • Among the main reasons for it are the depreciation of the peso, the upward adjustment of electricity rates and increased labor costs.
  • Despite the rise in short-term inflation expectations, at two years they are around the 3% target.
  • The above is seen in a scenario where economic activity shows weaker than expected domestic demand and where GDP growth this year is estimated at 2.3%.
However, inflation is expected to begin to decline in the second half of next year, reaching the 3% target by early 2026.

However, inflation is expected to begin to decline in the second half of next year, reaching the 3% target by early 2026.

  • The fall in inflation expected for the second half of 2025 is based on a weaker outlook for domestic demand and lower cost pressures.
  • Inflation will stand at 3.6% at the end of 2025, reaching the 3% target by early 2026.
  • Our economic growth projection remains within the 1.5% – 2.5% range in 2025 and 2026.
The main risks facing the Chilean economy come from abroad, mostly associated with greater uncertainty in the world.

The main risks facing the Chilean economy come from abroad, mostly associated with greater uncertainty in the world.

  • The international outlook has been marked by high degrees of uncertainty originating on different fronts.
  • These fronts are related to ongoing war tensions, fears about the global fiscal situation and the impact of a possible reconfiguration of international trade, among other issues.
  • The Central Bank of Chile will continue to monitor the risk trends and their potential impact on local financial conditions.
The Central Bank will continue to steer the monetary policy rate with the objective of ensuring that inflation converges to its 3% target.

The Central Bank will continue to steer the monetary policy rate with the objective of ensuring that inflation converges to its 3% target.

  • The risk balance for inflation is biased upward in the short term, underscoring the need for caution.
  • This means that the Board will be analyzing all incoming information about the economy’s performance in order to determine the timing of the MPR cuts in the next few quarters.
  • The Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.
Presentations
Presentación del IPoM diciembre 2024 ante el Senado
Conferencia de Prensa IPoM Diciembre 2024
 
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