The prices of oil and copper combined, plus those of other Chilean exports, determine a less favorable trajectory of the terms of trade in the policy horizon. Thus, between 2018 and 2020, the terms of trade will accumulate a decrease of the order of 3% compared to a fall of 2% estimated in March (Figure 10). On the side of inflation in Chile, the annual variation of the CPI and the CPI excluding food and energy (CPIEFE) levels remains around or slightly below 2%, without showing significant differences than expected in March. As has been the trend of recent quarters, CPIEFE inflation has been dominated by the evolution of the exchange rate, the persistent capacity gaps in the economy and the indexation of some prices to lower inflation rates (Figure 11). In the baseline scenario, we continue to expect CPIEFE inflation to have a slow convergence to 3%–not very different from what we expected in March–, while for headline inflation we foresee it reaching 3% sooner than we thought then. In the former case, this is consistent with an economy that, beyond recent data, will close its capacity gaps over the next two years, and with a real exchange rate that, as I said, will return to near its historical average during the policy horizon. For headline inflation, its faster achieveent of 3% is explained by the increase in fuel prices measured in pesos (Figure 12).
Especially important in this regard is to moderate and possibly reverse the course of public indebtedness, adopt a framework to capitalize the banking system and ensure a sustainable evolution of household borrowing. The signals of the government regarding the orientation of its fiscal policy, its backing of the new General Banking Act and the reactivation of its search for mechanisms to consolidate borrowers’ financial information are very 6  positive in this regard. Equally valuable in dealing with future turbulences seems to be to strengthen fiscal institutions by enhancing the status and autonomy of the Fiscal Advisory Council, as well as acknowledging the role of institutional investors in the Chilean economy in the face of future reforms. Dear senators, the Chilean economy is progressing in the recovery of growth and the closing of gaps. Rather than a result, this is a good start for a more favorable stage of the business cycle. Many challenges lie ahead. It is important to deepen the recovery of investment, that the labor market be strengthened and that competitive advantages be exploited to make this recovery more self-sustained and shared. Greater long-term growth calls for more structural changes that will help raise productivity. The Central Bank will be there to ensure that imbalances or vulnerabilities do not incubate in the process, which later may require more costly adjustments. Together we also have the responsibility to strengthen those factors that allow us to better withstand external shocks that will sooner or later be felt.