Chile's Inflation Drops Below 3% For First Time In Five Years As Political Transition Looms

(MENAFN- The Rio Times) Key Points - Annual inflation fell to 2.8% in January, the lowest since February 2021, beating the Central Bank's 3% target ahead of schedule. - The milestone closes a painful chapter that saw prices surge to 14.1% in 2022, driven by $50 billion in pandemic-era pension withdrawals and electricity tariff shocks. - With president-elect José Antonio Kast taking office in March, the debate shifts from taming inflation to whether austerity or stimulus best serves an economy growing at just 2.3%.

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Chile's consumer prices rose 2.8% year-on-year in January 2026, the National Statistics Institute confirmed on Friday, marking the first time in nearly five years that inflation has fallen below the Central Bank's 3% target. The monthly increase of 0.4% was driven by a 3.1% jump in alcoholic beverages and tobacco - with wine prices alone surging 7.2% - and a 1.2% rise in healthcare costs. Transportation pulled in the opposite direction, dropping 1.3% as international airfares plunged 17.6% and gasoline fell 3.3%.

The reading caps a remarkable descent from the 14.1% peak of August 2022, when pandemic-era pension fund withdrawals totaling roughly $50 billion, global supply disruptions, and the unfreezing of electricity tariffs - which produced cumulative bill increases exceeding 50% for many households - conspired to produce Chile's worst inflation in three decades. The Central Bank responded by raising its benchmark rate to 11.25%, then gradually easing it to the current 4.5%. Bloomberg reported that minutes from the January 27 meeting revealed a cut was actively considered, and analysts at Goldman Sachs, Itaú, and Renta 4 broadly expect a reduction to 4.25% in March.

Finance Minister Nicolás Grau celebrated what he called an ordered macroeconomy, noting 34 consecutive months of real wage growth and roughly 700,000 jobs created under President Boric. Economist Héctor Osorio of PKF Chile offered a sharper view, crediting the Central Bank alone as the institution responsible for the achievement.

The incoming Kast administration, which won the presidency with 58.16% in November's runoff, has promised $6 billion in spending cuts over 18 months and regulatory streamlining to boost investment.

Copper prices above $5 per pound and a record IPSA index near 10,400 points support optimism, but unemployment remains elevated at 8.4% and GDP growth averaged a modest 2% under Boric. The question Chile now faces is whether price stability can translate into the broad-based prosperity that has eluded Latin America's most developed economy.

Source: National Statistics Institute of Chile (INE)

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