Spring shoots in autumn?
The economy appears to be gaining momentum. Three consecutive months of positive variation in the IMACEC marks a clear shift away from a prolonged period of stagnation, and supports the 2% growth being forecast for 2025. The economy now appears poised to expand at a pace closer to its potential. Both commerce and manufacturing played a significant role in December’s strong IMACEC.
Consumption-related indicators suggest the surge was not driven by stronger consumption. Investment remains subdued, particularly in construction, while the value of exports remains high. Stronger exports and restrained imports contributed to a favorable trade balance in 2024 reaching the largest surplus since 2007.
The labor market has continued to show signs of weakness in recent months. While the headline unemployment rate declined, the seasonally-adjusted measure edged up slightly. Total employment decelerated, and the seasonally-adjusted figure fell. Between September and December, nominal wages decelerated, and real wages remained stagnant.
Consumer prices began 2025 with a surprise on the upside. The 12-month variation rose from 4.5% to 4.9% (3.7% excluding electricity supply). Core inflation indicators and CPI excluding electricity supply continue to suggest that, beyond specific shocks and the high prints in the first few months of 2024, inflation remains close to or just slightly above the Central Bank’s target. With electricity price adjustments now completed, uncertainty around monthly CPI readings has eased slightly, though it remains elevated.
As widely expected, the BCCH in its January meeting kept the TPM at 5%. The closing paragraph of the communiqué no longer mentions future rate reductions and, as in the latest IPOM, justified a more cautious approach by citing alleged cost pressures. Given the global context and market expectations, the likelihood of a longer pause in rate cutting has increased. But this could shift again, as it has repeatedly throughout the current rate-cutting cycle. Economic weakness is likely to weigh on domestic prices, and the BCCH Board may find it difficult to justify holding the TPM at its current level.
It is an election year, and at the presidential level the field still seems wide open. Perhaps for this reason, the left is wooing former president Michelle Bachelet, who remains their most popular figure. This only goes to underscore the lack of political renovation in almost all of the traditional parties, both programmatically and in terms of leadership. Should Bachelet choose to run, what exactly would she represent? Would it be a return to the old social democratic Concertación, or would she continue to embrace the more current, but much less popular, new left of President Gabriel Boric?
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