Compensación Inflacionaria en Chile

Abstract

This paper provides a simple analytical framework to decompose breakeven inflation. Estimates suggest that one and two years ahead, breakeven inflations are strongly linked to inflation expectations, and that their recent values are not necessarily inconsistent with complying with the inflation target. In the case of breakeven inflation one year ahead (1-1), figures like those of March-2008 require premiums (e.g., liquidity premiums) in the order of 100 bp to be consistent with an inflation rate of 3% two years ahead. While breakeven inflation in longer horizons, (5-5) is high, the gap between the 5-5 breakeven inflation and the target is small compared to that of other economies.