Experts predict more inflation and a blow to savings in Chile due to the Russian invasion of Ukraine

Although the Chilean economy is not fully exposed to the Russian and Ukrainian markets, the country is bracing itself for a severe inflationary hit due to the war in Eastern Europe due to its dependence on imports of basic materials such as oil and wheat.

The global rise in the barrel of crude oil will boost, according to experts, the price of essential products such as gasoline and bread in the coming weeks, slowing down a post-pandemic economic recovery that the Chilean Central Bank already outlined as fragile due to sharp inflation.

Experts calculate that, if the war continues, it will reach 7% by the end of 2022, almost a point and a half more than was expected at the beginning of the year.

“Chile is a net importer of oil and the price increase goes to the entire consumption basket due to the effects on transportation. There is also a second-round inflation given the chained effects of pressure on costs and interest rates”, pointed out the economist and director of the Business School of the Universidad Mayor, Francisco Castañeda.

“Russia is a major exporter of crude oil and what the conflict generates is a contraction in supply, therefore, prices tend to rise. We have already been seeing it in Chile with the price increase and we will probably continue to see it until we have a little more certainty.”, affirmed the economist and professor at the School of Social Sciences of the State University of O’Higgins (UOH), José Valenzuela.

hit to savings

Along the same lines, Valenzuela foresees a possible effect on the savings of the Chilean population, while the pension funds are exposed to the fluctuations of the stock market.

“This generates a lot of uncertainty in international markets, especially in companies associated with stock markets in New York, Japan or Europe. In Chile, the companies of the IPSA -Selective Stock Price Index- have a close relationship with them and are a great focus of investment of the money that is in the pension funds“, he claimed.

“What is being talked about in the media is that there may be changes to more conservative funds while the turbulence associated with the conflict passes”, added the economist.

On the other hand, a drop in the price of some raw materials such as copper, the main product exported by the South American country, is expected, which could significantly reduce state collection.

In this context, analysts project that beyond the policy of raising interest rates adopted by the Chilean Central Bank last year to sustain fragile growth, Chile can only adopt “political measures” to try to temper the blow, such as resorting to the reserve fund or raising tax pressure on sectors that are not affected by the conflict.