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Original article: El bolsillo no respira: Banco Central recorta crecimiento y eleva inflación esperada para 2026

The economic outlook for Chile has grown increasingly complex following the release of the June 2026 Monetary Policy Report (IPoM), where the Central Bank downgraded its projections for GDP growth this year while raising inflation expectations, which have surged «rapidly in recent months» amid ongoing geopolitical uncertainty stemming from conflicts in the Middle East and their impact on energy prices.

The central bank confirmed that both total and core inflation have progressed as anticipated, indicating that the Chilean economy is adequately absorbing the oil shock. However, it noted that inflation is projected to be slightly higher by the end of this year, expecting a rise of 4.2% by December, up from the 4% forecast in the previous IPoM.

Simultaneously, the bank raised its average annual inflation forecast to 3.7% from the previous 3.6% projected in March.

Nevertheless, the central bank anticipates a return to an annual change in the Consumer Price Index (CPI) of around 3% only by the second quarter of 2027.

The report emphasizes that the macroeconomic environment remains unusually uncertain due to the ongoing fluctuations of the conflict in the Middle East. Although the statistical closure of the report coincided with the announcement of an agreement between the United States and Iran—prompting gains in stock markets, a decline in interest rates, and a global depreciation of the dollar—the Central Bank warned that the global oil supply has yet to normalize, necessitating continued assessment of the impact of these events on inflation outlooks.

«While the risks to inflation are balanced, they remain significant and must be monitored closely,» it cautioned.

Rising Copper Prices and Demand

One of the factors contrasting with inflationary pressure is the positive outlook for copper prices. Forecasts for the red metal have been raised for the 2026-2028 period, with expected prices of US$5.8, 5.2, and US$5 per pound for each respective year, exceeding estimates from March.

This adjustment is attributed to strong global demand driven by increased defense spending, energy transition efforts, and investment in new technologies.

Economic Growth Slows

In its June IPoM, the Central Bank lowered its GDP growth forecast for 2026, now set between 1% and 1.75%, down from the previous estimate of 1.5% to 2.5% made in March.

«The projected GDP expansion for 2026 has decreased primarily due to the first quarter’s results,» the bank stated.

This downward revision is fundamentally explained by the negative surprise seen in activity during the first quarter, impacted by a poor performance in sectors tied to natural resources—such as copper mining, agriculture, and fishing—and reduced inbound tourism last summer.

However, the central bank indicated that the growth forecast for 2027 is projected to rise to between 2% and 3%, driven by expectations of improved investment performance. Additionally, for 2028, the range would adjust to between 1.75% and 2.75%.

Changes in Internal Demand Composition

In analyzing demand, private consumption is expected to moderate its growth during 2026, influenced by less favorable conditions: weak job creation, the harmful impact of inflation on real incomes, and deteriorating expectations due to geopolitical shocks.

Conversely, public consumption is projected to expand more than previously estimated in March, aligning with new fiscal projections. Regarding investment, its forecast has been reduced for this year, impacted by the first-quarter negative surprise, though medium-term prospects show encouraging signs, reflected in a 33% increase in expected investment amounts for major projects from 2026 to 2029, according to the latest report by the Corporation of Capital Goods.

Interest Rate Maintains at 4.5%

In its Monetary Policy Meeting on Tuesday, the Central Bank Board opted to keep the Policy Interest Rate (TPM) at 4.5%, a decision that reflects a balancing of risks for inflation, despite ongoing uncertainty.

It also reaffirmed that the future evolution of the TPM will be evaluated Meeting by Meeting, responding to developments, and will take necessary actions to ensure that projected inflation aligns with the 3% target within a two-year horizon.

You can review the content of the June 2026 IPoM below:

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