Rosanna Costa: Chile's December 2024 Monetary Policy Report
Presentation by Ms Rosanna Costa, Governor of the Central Bank of Chile, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 18 December 2024.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Introduction
Mr. President of the Senate's Finance Commission, senators members of this Commission.
As is customary, I would like to begin by thanking the Commission for periodically inviting the Central Bank to present its views on recent macroeconomic developments, as well as the outlook for and implications of monetary policy. It is this view that is presented in detail in the December 2024 Monetary Policy Report (IPoM) that was published this morning. This background is also the rationale behind the decision taken by the Board at yesterday's Monetary Policy Meeting.
This IPoM examines a scenario where inflation is above our expectations of a few months back. The annual variation of the CPI reached 4.2% in November and in the projections of this Report we foresee that it will close the year at 4.8%, to then fluctuate around 5% during the first half of 2025. From that moment on, it starts to decline to converge to 3% in the first part of 2026.
The higher short-term inflationary trajectory responds to a combination of cost factors. On the one hand, there is the global appreciation of the dollar -which has raised the exchange rate- caused by intensified global uncertainty. On the other hand, although with a lesser impact, there is the rise in local labor costs.
These shocks have occurred simultaneously, contributing to the narrowing of the firms' operating margins and leading to a greater-than-expected pass-through of costs to final prices. In the medium term, cost pressures will tend to ease and the evolution of inflation will be determined by domestic demand, particularly by a weaker performance of household consumption. Meanwhile, private consumption has been weak, amid low job creation dynamism, the real depreciation of the peso and still pessimistic sentiment regarding the economy.
As I will detail in a few minutes, the convergence of inflation to the target will not differ much from what we previously estimated, with the outlook for activity remaining largely unchanged, but with consumption growing less than was considered in the September Report.