Inflation in Chile

[2] In 1892 the "oreros" succeeded in having the convertibility of currency approved by law and in December 1895 non-convertible legal tender was pulled out of circulation.

[2] In 1898 the convertible regime collapsed once again in the face of severe economic instability (crop failure, war scare) and was abolished.

[5] All these reforms were established by rule by decree by Arturo Alessandri who had been reestablished in power following a coup d'etat against him in 1924 (where the coup-makers protested among other things against inflation).

[6] Much of Chile's chronic inflation in the 1945-1989 period was in part caused by government budget deficits financed by "money printing".

[7] In general terms budged deficit and other causes of inflation were related with internal as well as external economic turmoil in the period.

[7] The case of Chile drew the attention of both Albert O. Hirschman and Arnold Harberger both of whom published work on Chilean inflation in 1963.

The Chicago Boys had expected that since the government had achieved a fiscal surplus and the decision for external borrowing was left to private agents a foreign exchange crisis would not occur.

But in an effort to fight inflation Dollarization was introduced which lead to a Peso revaluation that caused high current account deficits which led to an increase in foreign lending.

Additionally capital controls were abandoned and the financial market deregulated which led to an undamped increase in private foreign borrowing.

In the early 1990s Chile pioneered Central Bank independence and a novel counter-cyclical fiscal rule to fight inflation.

[13] Inflation has seen a severe upsurge since the beginning of the COVID-19 pandemic in Chile, during the presidency of Sebastián Piñera, and at the start of Gabriel Boric's term in office.

[24] Minister of Finance Mario Marcel has argued against laws that would permit further pension fund withawals, claiming these withdrawals will lead to further inflation.

[25] In April 2022, President Gabriel Boric announced a $3.7 billion economic recovery plan that included an increase in the minimum wage to help people deal with rising prices.

[29] The poll Data Influye posits there is a dominant view among Chileans that inflation is the main issue that may weaken Boric's government.