A hard day's start

CHILE - Report 01 Jun 2026 by Igal Magendzo

We maintain our 1.5% GDP growth forecast for 2026, with risks still tilted to the downside. The latest activity data point to an unfavorable turn, and national accounts came in weaker than suggested by the IMACEC. Some of the weaknesses reflect one-time supply side events, but these do not fully explain the softer trend. Consumption offered a modest offset, while investment, business confidence, and the fuel-price shock point to limited lift ahead.
Labor market data delivered several negative signs. Unemployment rose by more than the usual seasonal pattern, employment contracted again and private payroll extended its downward trend. Wage data provided only limited relief. The real wage bill is losing strength at the margin, reinforcing a fragile outlook for private consumption.

The April CPI shock was concentrated rather than generalized. Headline inflation rose sharply, driven mostly by gasoline and diesel prices, while inflation excluding those items remained closer to the Central Bank’s target. Core measures stayed relatively contained, but services inflation continues to point to some persistence.

The minutes of the Central Bank’s last Monetary Policy meeting reinforced the view that the BCCH still sees a prolonged hold of the policy rate at 4.5% as its baseline scenario. For now, the board is trying to manage the fuel shock through communication, rather than via a rate move. The reference to possible hikes looks more like a tactical signal to anchor expectations than an imminent tightening call.

President José Antonio Kast’s removal of the minister in charge of security, and the decision to adopt former president Gabriel Boric’s security policies look like improvisation, exposing a gap between campaign expectations and governing reality. A similar pattern is emerging on the fiscal front, where announced spending cuts may be challenged by a larger-than-expected 2026 deficit. Weak growth, despite exceptionally favorable copper prices, raises deeper questions about Chile’s capacity for growth. A turnaround will depend upon whether deregulation and project approvals translate into visible momentum.

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