Producer inflation, copper prices and the predictive power of imports in Chile

A measure of Chilean inflation looks likely to retreat, given its historic tendency to move in tandem with the country's import trends. The value of imports declined 7.3% year-on-year in May, according to weekly data reported by the central bank; we therefore expect the producer price index (PPI) to decrease in May. (Official figures will be published on June 24.)

PPI is a measure of the average change in prices that an economy's domestic producers receive for their output. It's often considered a leading indicator for consumer price inflation (CPI). Our first chart tracks the evolution of Chilean PPI in recent years. During the global inflation surge of 2021-22, it stayed above a 25% annualized rate for months before tipping into deflation in 2023.

We've overlaid the year-on-year rate of change in weekly imports over this period to show the correlation. (In 2021-22, the rate was very high as the economy snapped back from pandemic disruptions.)

We've also added a dashed line for imported intermediate goods. This includes raw materials that are processed to become consumer goods, as well as inputs that are important for Chile's most important industry: copper mining.

As such, Chile's economy is heavily dependent upon this "intermediate" category, as our second chart shows; this drives the high correlation between PPI and import value seen in our final chart.

Copper will always have an outsized effect on Chile's macroeconomic conditions. As we wrote earlier this month, copper prices soared to a record this year amid optimism for long-term clean-energy technology demand and concern about supply constraints. This will help the public finances, but also boosted Chilean PPI as local copper mining and processing prices also rose. As the metal retreats from that spike, touching 8-week lows, Chilean PPI is likely to follow suit.

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