Effect of the 10% withdrawal: September and October explain almost half of the accumulated inflation in the year

For the second month in a row, inflation surprised to the upside. The 0.7% recorded in October was not in the scenario of any projection, which ranged between 0.2% and 0.3%.

In 12 months inflation registers a 3% rise and, so far this year, accumulates an increase of 2.8%. Of this total, 48.6% is explained by the increases in September (0.6%) and October (0.7%), which accounts for an acceleration in prices due, in large part, to the higher increases in food items and to the higher demand product of consumption, favored by the withdrawal of 10% of pension funds. Added to this is the opening that activities such as restaurants and hotels have begun to have.

According to the National Institute of Statistics (INE), in the tenth month of the year, eight of the 12 divisions that make up the CPI basket contributed positive impacts on the monthly variation of the index, three presented negative impacts and one registered zero incidence.

Among the divisions with increases in their prices, food and non-alcoholic beverages stood out (0.6%) with 0.119 percentage points (pp.) Of incidence in the monthly CPI. Of the 76 products that make up that division, 52 presented increases. This division is precisely where the 20% of the population with the lowest incomes (the first quintile) spend the most. According to the monthly Pulse index, based on the latest INE Household Budget Survey, while the total CPI accumulated a 3% rise in 12 months, the CPI of the first quintile reached 3.4%. Likewise, in the richest quintile, annual inflation reached 2.5%. With this, the difference in annual inflation between the first and fifth quintiles was 0.9 percentage point, moderating the difference in relation to the previous month (1.1pp).

The second division with the highest incidence was clothing and footwear. Clothing increased (4.2%) and contributed 0.076pp, followed by shoes and other footwear (2.6%), with 0.033pp.

By products, the INE reported that financial expenditure was the one with the highest incidence in the month. In October, it presented an increase of 69.4%, contributing 0.097pp. Economists say this is due to the end of the stamp duty reduction as a measure to face the crisis. According to Santander, it contributed almost one tenth to the CPI.

Meanwhile, new cars registered a monthly increase of 2.1%, with an incidence of 0.061pp., And a variation of 7.0% so far this year.

Santander explains that behind the increase in prices there are two phenomena whose impact should be transitory. First, there is the injection of liquidity that households received with the withdrawal of pension funds and the Emergency Family Income. Second, the process of deconfinement allowed people to more easily access the purchase of goods and services. Both events raised consumption very substantially and put pressure on prices.

Martina Ogaz, economist at EuroAmerica, notes that “there is a lag in the effect of 10% on prices, because there are increases in divisions such as clothing, which are not in accordance with the season or new car, a sector that was not particularly prepared for a greater demand this year ”. And Scotiabank argues that “the strong pressure on consumption caused by the withdrawal of funds from the AFPs would be generating a transitory, but very significant pressure on the demand for goods that are not essential.”

In Banchile they put another point on the table: “Although we had already anticipated the impact of the stock break of imported goods caused by the withdrawal of pension funds (a fact mentioned by the Central Bank in its recent Business Perceptions Report), effects have occurred in a shorter period of time than expected and with greater intensity ”.

Another effect that may explain the increase in inflation is the greater liquidity in the market, as a result of the measures promoted by the Central Bank.

Jorge Hermann, economist at Hermann Consultores, explains that “aggregate demand has been stimulated by a monetary impulse never seen before, with a reference rate of 0.5% per year and extraordinary monetary measures of US $ 78,000 million, which imply an increase in the 61.7% per year in nominal money, together with an ultra-expansive fiscal policy with an increase in fiscal spending of 11.4% and the withdrawal of 10% of pension funds in 2020 ”. For Hermann, this must be closely monitored by the Central Bank so as “not to end up generating unnecessary inflationary pressure.”

Despite this acceleration, experts maintain that the increases respond to transitory effects and therefore do not expect new surprises of this level for November. Expectations are around 0.1%. For the year, meanwhile, the projections fluctuate between 2.7% and 3%.