What Does the Rise in Fuel Prices Mean for the Economy?

Abstract

The historic rise in fuel prices in Chile, with increases of 30% in gasoline and 61% in diesel, has generated a severe supply shock with significant macroeconomic repercussions. This phenomenon raises projected annual inflation from 2.4% to close to 4%, with real risks of exceeding 5% if price expectations are not contained, given that the price of oil remains at 100 dollars a barrel. The Central Bank faces the dilemma of adjusting the Monetary Policy Rate (TPM), whose effect takes up to a year, balancing inflation containment without stifling growth and employment. The credibility of the issuing institution will be essential in preventing this transitory impact from turning into permanent inflation, affecting national investment and consumption.