The Economy is Numb
In its latest Monetary Policy Report, the Central Bank confirmed its neutral stance on monetary policy. The Central Bank also reaffirmed that the main channel of transmission of monetary policy is the exchange rate. Apparently, the Board believes that at 670 the peso is slightly overvalued. Bank credit also acquired relevance.
In August the monthly variation of the Consumer Price Index (CPI) was 0%, in line with what was implicit in financial prices. The 12-month change in CPI was below 3.5% for the first time since February 2014. It is increasingly evident that inflationary pressures are easing.
Economic activity continues to be depressed, especially in mining and manufacturing, while the retail sector has remained buoyant, which is consistent with labor market figures. The good news is that for now, we seem to be avoiding a technical recession. July sectoral data corroborated recent trends and reflected an economy still in hibernation.
In August, for the fourth consecutive month, the 12-month growth rate of total bank credit fell. This fall is in line with commercial and housing loans. The annual growth of consumer loans, however, continues on an upward trend. A continuation of this trend could constitute a significant risk.
The unemployment rate continued to rise, while the rate of employment growth broke the downward trend it had been showing in recent months. But one should take this apparent good news with caution. We see a labor market that continues to deteriorate gradually. The data on wages and labor costs confirm lower inflationary pressures for next year.
Codelco’s Executive Chairman, Nelson Pizarro, told a Chilean reporter the shocking truth about the financial situation of the company: “There is no money at all. There is not a $@&%*! penny”. Part of the problem stems from the transfers that Codelco is forced by law to make to the Chilean military. A recent corruption scandal could change all of this by calling into question the political legitimacy of this law. Experts agree that it is urgent to ease the financial burdens on Codelco. The financial situation of Codelco is relevant to Chile’s prosperity. As a consequence, Codelco needs some help.
Ricardo Lagos, who governed Chile from 2000-2006, announced his intention to run for president next year. He hopes to capitalize on the popularity he held when leaving office, as well as on a stellar international reputation. However, his record in office, seen in a new light, seems less stellar than it once did. In addition, Chile has changed over the last decade, and Lagos' fatherly and sometimes authoritarian approach may no longer play to an electorate that demands more dialogue, transparency and participation. Moreover, not only is Lagos not polling well, his Nueva Mayoría emerged from the Concertación, but is different, and it is unclear that the parties that make up the coalition will support him.
So why is Lagos running? To protect a lifetime's work of bringing governability not only to the country, but to left-wing, which he once represented. Lagos sees the changes in the country and within the parties that (may) support him, and seeks to bring them back into the fold.
Now read on...
Register to sample a report