2023-07-04 16:30:00
Pablo García, vice president of the Central Bank, calmed the waters regarding the moment the Chilean economy is going through, especially regarding the increase in unemployment to 8.5% in the March-May quarter reported by the National Institute of Statistics (INE) at the end of last week.
The representative of the autonomous entity assured that he sees an unemployment figure “that is not unusually high for our history.”
In the framework of a presentation of the Monetary Policy Report (IPoM) at the Apoquindo de Inacap headquarters, García explained that despite the concern that exists for the labor situation, “Phenomena are seen that are similar to those that occurred with economic activity, a very sharp fall and a rapid recovery followingwards, where the recovery has led to employment levels that are relatively similar to those we had before the pandemic”.
In addition to this matter, the vice president of the Central Bank referred to the struggle that the autonomous entity is carrying out to reduce inflation levels in the country. In fact, he began his presentation by stating that “The first thing to say is that inflation in Chile continues to be the main macroeconomic problem we have”.
Why have interest rates failed to bring down high global inflation?
This phenomenon is explained, he said, by an excess of spending and consumption during the pandemic, but that in recent months has been decreasing. This thanks to volatile components such as food and oil, which left behind the shock of the war in Ukraine. But in terms of the domestic economy, García explained that subjacent inflation -which does not consider volatile products- remains high.
To combat this, the economist pointed out that as a bank they have designed a long-term monetary policy, and that is why they have been delayed in the process. “We know how to make inflation come down fast, but it is not highly recommended”.
And he gave the example of a car: “Initially one wants to brake gradually, not brake with the handbrake.” Inflation has taken its time to contract because The objective of the Central Bank is to “return to 3% in two years, not tomorrow, not the day following tomorrow or the next month, but in two years”.
This, he said, because “restore macro balances, get the economy in order, Let inflation go down, it’s not free, it’s something that hurts. We must lower the level of consumption, we must limit the degree of expansion of the economy. This year we are going to have growth below our potential, true, and that is the cost of bringing inflation down to the target.”
greater balance
García also highlighted that the price of the dollar is close to historical averages, and that the evolution of activity and demand has been in line with what was foreseen in the March Report.
“Today, in mid-2023, we can say that following several years the economy in general is returning to levels of greater equilibrium at the macroeconomic level”he stressed.
Even so, he called for keeping an eye on external factors that might affect Chile. “The world always brings us surprises,” adding that the United States and Europe have yet to raise the rate.
In the case of Chile, it reinforced the call from the Report that the Monetary Policy Rate (MPR) is now ready to begin its downward path.
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