Rise in the exchange rate adds pressure to high inflation and the market now raises its forecast for the end of the year to 8.9%

Although the dollar managed to move away from $870 at the close of the last day, the levels of recent days add to the concerns of the Chilean economy. And it is that a higher exchange rate would add tenths to the already high national inflation, which would be at 8.9% for December -before it was 7.8%-, according to the Economic Expectations Survey published yesterday by the Central Bank.

The manager of Gemines Studies, Alejandro Fern├índez, states that the additional pressure is “enough”, so tradable inflation will continue to accelerate. “The devaluation has been significant and the exchange rate is very high,” he warns.

But both he and Carolina Molinare, a researcher at the Observatory of the Economic Context of the UDP, agree that the inflationary pass-through of depreciation may be more limited, because the origin is external and not internal factors.

Carmen Gloria Silva, an economist at Banco Santander, explains that the depreciation of the exchange rate raises the cost of imported goods – more or less half of the goods considered in the Consumer Price Index – and, with it, exerts pressure on inflation in the short term.

Something that was observed in part – he says – in the “inflationary surprise of April”, when the CPI rose to 10.5% per year and reached double digits for the first time since 1994.

In fact, the chief economist of STF Capital, Sergio Godoy, explains that the effect of the dollar takes two or three months to manifest itself, especially in durable goods, energy and food. His projection is that inflation will remain high throughout the year, closing at 9.4% in December.

A panorama in line with that of Samuel Carrasco, senior analyst at Credicorp Capital, who says that, if the exchange rate remains at the current level for the rest of the year, he would add “a few additional tenths” to his inflation projection, today in 9.2% as of December. Of course, he states that “the resolution of key political events in the coming months could decompress part of the risk premium implicit in the peso, mitigating inflationary pressures.”

Claudia Sotz, chief economist at Tanner Investments, also puts some cold cloths. He explains that, although the level of the exchange rate is quite high today, “in relative terms to other currencies, the depreciation trend is in similar figures, so the incidence on inflation should be less than, for example, what happened during 2021” .

The senior economist at BCI Estudios, Antonio Moncado, details that the coefficient of transfer of the exchange rate to the total CPI is around 15% over inflation at one year.

And the growth?

But this higher inflation would occur despite the slowdown. In April, the Monthly Indicator of Economic Activity (Imacec) grew by 6%, below the 7.2% that grew in March, according to the EES. And, although the group maintained its forecast that the economy would grow 1.5% this year, it cut its projection for 2023 to 0.5%.

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