Inflation in Chile

A short history of inflation in Chile

Suppressed Inflation and the Coup (1970 to 1976)

The Allende government, elected in November 1970, ran very large deficits financed by the central bank while holding prices down by decree, so the inflation existed but went partly unmeasured, showing up as shortages and a black market instead. After the military seized power on 11 September 1973 the controls were removed and the accumulated pressure arrived at once: prices rose 87.6% in the single month of October 1973 and 746% in the year to April 1974.

Independence and Targeting (1989 onwards)

Bringing it down took the better part of two decades, and what made it stick was legal rather than economic. On 10 October 1989 the central bank was made autonomous under a statute written to be hard to reverse, requiring a high threshold in Congress to alter its standing. Chile was then among the first countries anywhere to set an explicit inflation target, well before the practice spread, and has held inflation in single figures in thirty of the thirty-one years since 1995.

Post-Covid Inflation (2021 to 2023)

In Chile, prices rose fastest in August 2022, at 14.1%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.