MercoPress. South Atlantic News Agency

Hike in electricity bills burdening Chile's inflation policy

Chile needed not to repeat Argentina's disproportionate fare increases, Ramos explained

A recent increase in electricity bills has Chile's Central Bank needing to postpone getting the South American country's inflation under control, according to the Monetary Policy Report (IPoM) for June 2024 released Wednesday.

The Central Bank's study warned that recent rate adjustments to reach consumers as of next month herald inflation increases escalating towards 2025, due to which the desired 3% goal will not be achieved before 2026, it was explained. The annual variation for this year is forecast to stand at around 3.5% while biennial expectations remained at 3%.

“This is mainly influenced by the impact of the supply shock associated with the Electricity Tariff Stabilization Law. The central projection scenario shows that this phenomenon would increase projected inflation to June 2025 by 1.45 percentage points,” the report noted.

The document also pointed out that Chile's economy “has evolved in line” with what was projected in the previous report (March) and that activity has been resuming a growth path “consistent” with its trend, with a performance of demand “somewhat better than expected.” As per the IPoM survey, higher economic growth earlier this year stemmed from now reversing supply factors.

On the international front, Chile's economy is still impacted by monetary policy developments in the United States, it was also explained.

Meanwhile, Energy Undersecretary Luis Ramos said Wednesday from Puerto Montt in Chilean Patagonia that the electricity rate hike had been adopted to avoid the “Argentine experience.” Ramos argued that fares needed updating since the 2019 uprisings because today the real costs of the service were not being met. The measure was adopted to dodge the need for a disproportionate increase as in Argentina.

Subsidies of up to 40% for Chile's most vulnerable households were still under consideration, Ramos also pointed out.