Chile's economy normalizes amid global uncertainty

Chile's economic growth proved more resilient than anticipated in 2025, with non-mining activity expanding by nearly 3 percent, one percentage point above initial estimates.

This strength was driven by a resilient global economy, particularly in the US, and robust investment in machinery and equipment, which grew by close to 7 percent.

Private consumption recovered more gradually, with improving real labor income.

Inflation followed a less linear path, initially raising concerns in early 2025, but then declining faster than expected in the second half, supported by lower goods prices and easing external pressures.

By late 2025, inflation consistently undershot projections, converging to the 3 percent target in the first quarter of 2026.

Headline and core inflation stood at 3.5 and 3.3 percent year-on-year, respectively.

Services inflation remains a key focus due to its sensitivity to wage dynamics, despite overall medium-term expectations remaining firmly anchored at 3 percent.

Monetary policy in Chile gradually moved away from a clearly restrictive stance throughout 2025, with the real policy rate approaching levels slightly above the estimated neutral rate of 0.75-1.75 percent.

The Board unanimously decided to keep the policy rate at 4.5 percent at its most recent meeting, aligning with market expectations.

Deputy Governor Naudon deemed this decision reasonable due to several factors.

Recent activity weakness largely reflects transitory factors, while medium-term prospects have improved.

Short-term inflation pressures have eased significantly, partly due to peso appreciation, reflecting improved domestic prospects and increased copper prices.

Finally, inflation expectations remain well anchored at the Central Bank's 3 percent target over the medium term, supporting the decision not to make further adjustments.