This depreciation of our currency, however, is an optimal response to the new circumstances, as it implies an adjustment of relative prices and thus contributes to the rebalancing of sources of growth across economic sectors. In other words, it shifts the growth dynamic from domestic demand to exports. In this scenario, Chilean inflation has returned to the vicinity of 3 percent (bear in mind that last year it was most of the time in the lower part of the Central Bank’s tolerance range: 2 percent) (figure 3). So this big depreciation of the Chilean peso has not altered the forecast that inflation will remain in line with the target over the policy horizon. This reflects that the pass-through coefficient, which measures how much of the depreciation is translated into higher prices, so far has not created unwanted propagation to inflation. Of course there are items that immediately reflect any exchange rate movements, like fuels, for example. But the passthrough to core inflation trends and expectations is not so mechanical. On one hand, there is evidence suggesting that it depends on the economy’s cyclical conditions, meaning that in the present circumstances, where gaps are being formed, this pass-through should be small. On the other hand, said coefficient has shrunk over time as the inflation targeting scheme has consolidated. Thus, the credibility of monetary policy also reduces the coefficient, allowing us to project that, beyond short-term effects, inflation will stay near the target over the policy horizon.
Figure 6 Gross fixed capital formation (annual change, percent) 60  60  40  40  20  20  0  0  -20  -20  -40  -40 09  10  Total investment  11  12  Construction & other works  13 Machinery & equipment  Source: Central Bank of Chile. BIS central bankers’ speeches  9  Table 1 International baseline scenario assumptions 2012  2013 (f)  GDP growth Trading partners' GDP World GDP at PPP  3.4 3.1  3.6 3.3  3.4 3.0  3.4 3.0  United States Eurozone Japa China India Rest of Asia (excl. Japan, China and India) Latin America (excl. Chile)  2.8 -0.6 1.9 7.7 5.1 3.8 2.7  1.9 -0.4 1.1 8.1 6.3 4.3 3.3  1.7 -0.4 1.8 7.6 4.1 3.8 2.6  1.9 -0.4 1.6 7.7 4.5 3.9 2.4  LME copper price $ Brent oil price $  361 112  350 108  332 109  332 109  Terms of trade  -4.1  -0.4  -3.9  -3.2  March'13 Report  Dec.'13 Report  March'14 Report  2014 (f) March'13 Report  Dec.'13 Report  IPoM Mar.