Also, private consumption has increased in line with the significant increase in personal income. Still, we face significant risks, which I will look in more detail in a moment. Those coming from abroad have to do with the world economic situation I just described; domestically, they relate to the possibility of an exacerbation of output and expenditure. Beyond these risks, in the baseline scenario that today we believe to be the most likely, the Chilean economy will resume growth in line with the trend, while inflation will gradually return to levels that are consistent with the target. Let me now describe this scenario and the risks we have identified. Macroeconomic scenario The macroeconomic scenario facing the Chilean economy has not changed significantly in the past several months. As I just said, Chile’s output, and especially domestic demand, has grown above expectations. Some progress has been made abroad, but the risks derived from the Eurozone crisis are still present. In this context, headline inflation has fluctuated substantially in recent months, due to one-time events associated with supply shocks. Core inflation – discounting foodstuffs and energy – has declined slightly to near 2 percent y-o-y. The Board, continuing with what has been the tone throughout the year, held the monetary policy interest rate at 5 percent. Domestic situation As of November, y-o-y CPI inflation was 2.1 percent, after rising to almost 3 percent in October (figure 1). Y-o-y growth in nominal wages has remained roughly constant in the 6% to 7% range, although with differences across sectors.
The peso/dollar parity, with ups and downs, is somewhat lower than in the previous Monetary Policy Report, while the real exchange rate (RER) has shown no significant variation. The Board continues to estimate that, with the prevailing nominal exchange rate and currency parities, the RER is in the lower part of the range of values consistent with its long-term fundamentals (figure 3). In the baseline scenario, y-o-y CPI inflation will stand below the tolerance range in the coming months, to start rising later and approach 3% by the end of 2013 and over the projection horizon, this time the last quarter of 2014. There are several factors explaining the lower figures foreseen for the near future, including the high basis for comparison of late 2011 and the turn of 2012. Core inflation will post y-o-y variations below 2% over most of 2013, then it will rise gradually to near 3% over the course of 2014 (figure 4). This path assumes that wages will grow in line with productivity and target inflation. In addition, it relies on the methodological assumption that, over the projection horizon, the RER will be fairly unchanged from its recent values. Finally, the baseline scenario uses as a working assumption that the MPR trajectory will be stable, as suggested by the latest surveys available at the statistical closing of this Monetary Policy Report (figure 5).