1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 106
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
2027. Calm policy expectations may turn shaky towards the latter part of 2026, when rate hike
speculation may begin to brew, with possible implications for investment, hiring, and Chilean
asset prices.
Services inflation remains hot amid employment cost pressures
16%
14%
YoY change
12%
10%
8%
6%
4%
2%
0%
2015
2016
2017
2018
2019
Services ex. volatile items inflation
2020
2021
2022
Headline inflation
2023
2024
2025
Inflation target
Source: INE, Scotia Wealth Management.
On the one hand, an outperformance of Chile’s economy under Kast – driven by stronger-thanexpected employment gains – could reignite inflation, pulling it away from the 3% goal. On the
other hand, we do not expect Kast to roll out additional pro-labour policies via wage or pension
contribution increases, which are behind some of the current stickiness of Chilean inflation. It is
a tricky call to make at the current juncture, prior to the start of the new administration, after
which point matters could quickly change
The evolution of the exchange rate could also play an important role in the BCCh’s decision
making. Our latest forecast pegs the USDCLP exchange rate at ~870 over the next two years,
appreciating from its current level of 900-925 on the back of firm metal prices and expectations
of a more business-friendly administration, as well as a fading of the Chilean peso’s (CLP’s) risk
premium. Currency strength could boost the odds of additional BCCh easing, but unpredictable
external factors remain a key determinant of the peso’s performance. Weaker metals prices, a
broad appreciation of the U.S. dollar (USD; whether on rate differentials or risk sentiment), or a
correction in international financial markets could tilt the CLP balance in the opposite direction.
At home, periods of social unrest that reminds markets of 2019-2020 could also lead to a
pronounced depreciation in the CLP.
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