Disinflation resumes after a temporary inflation rebound
Recent dynamics
Chile entered 2025 with annual IPC inflation close to 5%. The rate stood at 4.9% in January and again in March before gradually moderating through the middle of the year. After some renewed pressure in September, inflation declined more decisively, reaching 3.4% in October and November and ending 2025 at 3.5%.
The disinflationary process initially strengthened in early 2026. Annual inflation declined to 2.8% in January and 2.4% in February, temporarily moving below the BCCh's 3% inflation target. This improvement, however, proved short-lived. Inflation returned to 2.8% in March and then accelerated sharply to 4.0% in April, 3.9% in May, and 4.3% in June.
The renewed increase was heavily influenced by higher production and energy costs, particularly the rise in fuel prices associated with the external oil-price shock. This distinction is important because it suggests that part of the rebound reflected relative-price and imported cost pressures rather than a uniform acceleration across the entire domestic price structure.
July brought a significant moderation. Annual IPC inflation declined from 4.3% in June to 3.5%, while the monthly IPC increase was limited to 0.1%. Compared with July 2025, annual inflation is now 0.8 percentage points lower, reinforcing the broader improvement visible over the past year.
Interpretation and economic signal
The latest reading provides a favorable signal for Chile's inflation outlook, but the path toward price stability remains uneven. The movement from 2.4% in February to 4.3% in June and back to 3.5% in July illustrates how headline inflation remains sensitive to external cost shocks and changes in volatile components.
At the same time, the composition of inflation provides a more nuanced picture than the headline rate alone. While headline IPC accelerated during the second quarter, underlying inflation excluding food and energy remained around the 3% target according to the BCCh. This suggests that the recent inflation shock was not equally distributed across the price basket and that broader domestic inflationary pressures were more contained than the headline figures implied.
Nevertheless, headline inflation at 3.5% remains above the BCCh's 3% target. The Central Bank has therefore maintained a cautious policy stance, keeping the Tasa de Política Monetaria (TPM) at 4.5% in its July meeting while continuing to assess the persistence and transmission of recent cost pressures.
The June monetary policy outlook also indicated that convergence of headline inflation to 3% could take until the second quarter of 2027. Consequently, the July decline should be interpreted as renewed progress in the disinflation process rather than evidence that convergence has already been completed.
Conclusion
Chile's inflation picture has improved materially compared with the elevated readings observed during much of 2025. The decline to 3.5% in July 2026, together with the 0.8 percentage-point reduction from a year earlier, indicates that the broader disinflationary process remains intact despite the temporary rebound during the second quarter.
However, the volatility observed during 2026 argues against treating the latest decline as definitive. Inflation remains above target and exposed to external energy and cost developments. A sustained convergence toward 3% will depend not only on the fading of these shocks, but also on whether underlying domestic price pressures remain contained in the coming months.