The Unidad de Fomento (UF, Chile's inflation-indexed unit of account) will add $164.52 over the next 31 days, according to BioBioChile. It will go from $41,130.94 to $41,295.46, based on official data from the Banco Central (Chile's central bank) cited by that outlet.
The adjustment follows the Índice de Precios al Consumidor (IPC, the consumer price index), the indicator that measures price changes in a basket of goods and services. According to the Instituto Nacional de Estadísticas (INE, Chile's national statistics institute), September CPI rose 0.4%. It has accumulated 4.0% so far this year and 4.1% over twelve months.
The UF works like a ruler that stretches with inflation. Its value in pesos is recalculated each month based on the CPI, so that anything agreed in UF keeps its purchasing power even when prices rise.
That has a direct effect on your wallet if you pay for something in UF. A rent of 15 UF, for example, will cost about $2,468 more by the end of the period. A mortgage payment of 20 UF will rise by around $3,290. Health plans, the unemployment fund, insurance and some education costs also move.
September inflation was lower than the market consensus expected and below August's, which reached 0.6%. Year-on-year inflation held at the previous month's 4.1%.
Food and non-alcoholic beverages, along with transport, accounted for most of the increase. Within transport, gasoline rose 2.7% in the month and has accumulated 20.8% in the year.
Ignacio Mieres, head of research at brokerage XTB, told BioBioChile that the figure reflects "a moderation in the pace of price growth". According to his analysis, insurance and financial services was the category that did most to contain inflation.
Mieres also highlighted core inflation, which excludes the most volatile prices. It rose less than the headline index, which in his view indicates that pressures were concentrated in food and fuel rather than in a broad-based rise in prices.
For the analyst, the result gives the Banco Central more room to act cautiously before moving the interest rate. Even so, he warned that fuel remains a risk factor. The exchange rate reacted with a rise of about 0.7%.
The UF has also returned to the political debate with the Government's capital markets reform, known as MK4. Finance Minister (ministro de Hacienda) Jorge Quiroz is seeking the "internationalization of the peso" so that it can serve as a reserve currency and facilitate more long-term lending, such as mortgages.
Today, housing finance in Chile is dominated by UF-denominated loans, because banks use the unit to protect themselves from inflation risk. Banning these loans has been discussed, since wages do not always rise at the pace of inflation. The Banco Central and both the previous and current governments have opposed it, warning that it could make credit more expensive.
The president of BancoEstado, Mario Farren, spoke in favor of moving toward peso-denominated mortgages. "Our currency is the peso, not the UF", he said. While that debate continues, the UF will keep rising daily until it reaches $41,295.46 at the end of the period.
