In particular, the actual and expected oil price dropped significantly, mainly due to supplyside factors that have generated a surplus balance in the oil market. It has also translated into a reduction in the relevant external inflation forecast, and has improved Chile’s terms of trade. However, part of this is offset by the lower copper price – actual and foreseen – which traded at less than 3 USD per pound in the weeks prior to the statistical cutoff of this IPoM Report. The baseline scenario assumes that the copper price will average 295 and 285 cents per pound in 2015 and 2016, respectively. Chile’s annual headline inflation is expected to remain above 4 percent for some more months. Still, the mix of high comparison basis in 2014, the evolution of fuel prices and the accumulation of capacity gaps in the economy will pull it down towards 3 per cent over the course of 2015. Then it should hover around 3 percent until the last quarter of 2016, i.e., the end of the projection horizon (figure 9). The CPI that excludes food and energy CPIEFE forecast for 2015 is corrected upward, taking into account the sharper depreciation of the peso, its transmission to prices and the evolution of nominal wages. At any rate, it is expected to end next year around 3 percent and fluctuate close to that value throughout 2016.
Thus, any surprises in the evolution of the US monetary policy could affect  4  BIS central bankers’ speeches  financial conditions – like they did in May of 2013 –, raising credit costs in world markets, reversing portfolio flows and depreciating emerging-country currencies against the US dollar. The beginning of a new cycle of quantitative expansion by the European Central Bank, plus similar announcements by the Bank of Japan, might reduce the likelihood and impact of these volatility episodes, depending on how these unconventional policies ultimately reflect in global lending conditions. A different risk has to do with the slowdown of emerging economies resulting in reduced capital flows. This because their assets become less attractive, all the more so in Latin America. A scenario in which the recent drop in commodity prices is prolonged or intensified, or where doubts about China’s performance resurge strongly, might trigger this kind of event. The scene may become more complex if at the same time long-term rates go up in the US, increasing the cost of external funding. It should also be considered that an increase in the cost of external financing could put upward pressure on local long-term interest rates. The decline in external and domestic long-term interest rates has motivated bond issues in both markets and local demand for type-3 mutual funds.