Underlying inflation remains contained despite headline volatility

Recent dynamics

Underlying inflation entered 2025 at 4.21%, but price pressures moderated substantially during the first part of the year. The annual rate declined to 3.86% in February, 3.66% in March, and 3.54% in April.

This decline was temporarily interrupted around the middle of 2025. IPC sin volátiles inflation rose from 3.54% in April to 3.79% in June and 3.98% in July, before remaining close to that level through September. The movement indicated some persistence in underlying price pressures even as the broader disinflation process remained intact.

A more pronounced moderation followed in the final quarter of 2025. Core inflation declined to 3.44% in October, 3.40% in November, and 3.33% in December. By then, the measure had moved substantially closer to the BCCh's 3% inflation target.

During 2026, the most notable feature has been stability rather than renewed acceleration. Annual IPC sin volátiles inflation has remained within a relatively narrow range, fluctuating between approximately 3.2% and 3.4%. After reaching 3.44% in April, it eased to 3.21% in May, rose moderately to 3.39% in June, and declined again to 3.21% in July.

Interpretation and economic signal

The behavior of IPC sin volátiles provides an important contrast with the more volatile path of headline IPC inflation. Headline inflation fell to 2.4% in February 2026 before accelerating sharply to 4.3% in June, largely reflecting the impact of higher energy and fuel costs. IPC sin volátiles did not reproduce that acceleration.

Instead, underlying inflation remained close to the low-3% range throughout the episode. This divergence indicates that the headline rebound was concentrated disproportionately in volatile components rather than reflecting an equally strong and generalized increase in persistent domestic price pressures.

This distinction is particularly relevant for monetary policy. Temporary increases in energy or other volatile prices can lift headline inflation sharply without necessarily generating the same degree of persistent inflation. The stability of IPC sin volátiles therefore suggests that transmission of the recent cost shock to broader inflation has remained contained so far.

The year-over-year comparison reinforces this assessment. Core inflation declined from 3.98% in July 2025 to approximately 3.21% in July 2026, a reduction of about 0.77 percentage point. Compared with the 4.21% rate observed at the beginning of 2025, the cumulative moderation is approximately one percentage point.

Nevertheless, convergence should not yet be considered fully complete. At slightly above 3%, underlying inflation remains marginally above the BCCh's target, while the persistence of external cost shocks still warrants attention for possible second-round effects on less volatile prices.

Conclusion

Chile's core inflation dynamics currently present a considerably more favorable picture than headline inflation alone would suggest. IPC sin volátiles has fallen materially from its early-2025 levels and has remained close to the 3% target throughout 2026, even as headline inflation was temporarily pushed higher by volatile energy-related components.

The current signal is therefore one of contained and gradually converging underlying inflation. If IPC sin volátiles remains near 3% while the effects of recent external price shocks fade, the inflation composition would become increasingly consistent with normalization of Chile's medium-term inflation environment.