The CPI figure published today is a little below the expectations of market agents and our own, but as we have said time and again we do not react to the news of the day, although we do take them into account to detect the trends. In any case this figure does not change the direction of monetary policy. Nor does it modify our forecasts of strong growth with limited inflation we include in this Report. Our monetary policy strategy is a preventive one, headed to normalization, and does not respond – luckily – to an inflationary spurt or to some unsustainable expansion process. In this Report’s baseline scenario, gradual progress toward MPR normalization is assumed, but its level will continue to be expansionary still for several quarters. As always, the pace of normalization will depend on how domestic and foreign macroeconomic conditions unfold, and will be consistent with the inflation target. Accordingly, it is essential that we do not lose sight of the external scenario. The latest developments have increased uncertainty about the pace of global growth while financial markets are still highly volatile. Also, the nominal appreciation of the peso over the past few months has been substantial. Although the current levels of the real exchange rate do not reflect an obvious misalignment with its long-term fundamentals, exchange rate movements do affect the conduct of monetary policy significantly, as they play a stabilizing role.
The range for this year has been upgraded from June, based on actual data above projections in the first half and more dynamic figures available for thirdquarter demand and output, which are foreseen to continue into the first half of 2011, prompting output gaps to close in this latter period (figure 7). For the year 2011 GDP is expected to grow by 5.5%–6.5%. Moderation of world growth towards 2011, the dissipation of one-time effects of the crisis and 27-F, plus the gradual withdrawal of monetary policy stimulus will result in both output and domestic demand slowing down by the second half of 2011. It is worth noting that y-o-y GDP growth figures in the second quarter of 2011 will be high due to the low basis for comparison associated to the earthquake. Similarly, once the swelling of domestic demand is finished, it should expand next year at a rate the half of the strong growth it should post this year. This will come accompanied with more dynamic export volume growth that will revert the tough 2009 and 2010 years, when exports were affected by the global recession and by the disruptive effects of the earthquake (table 2). The rebound of the Chilean economy is also apparent in a dynamic labor market, where employment is growing strongly and the rate of unemployment has dropped (figure 8).