Social unrest, pension withdrawals, and a pandemic-era inflation spike

Social unrest that began in October 2019 over subway fares widened into broader protests over inequality, and the government's response, alongside the pandemic that followed in 2020, led Chile's Congress to approve three separate rounds of early withdrawals from mandatory private pension funds between 2020 and 2021, releasing tens of billions of dollars directly into household spending at a time when supply chains were already strained. That surge in domestic demand, combined with a weakening peso and global commodity and shipping-cost increases, pushed Chilean inflation above 6.5% by the end of 2021 and kept accelerating through 2022 to around 14% by August, the highest rate in roughly three decades. The Banco Central de Chile raised its monetary policy rate aggressively in response, reaching 11.25% by October 2022, among the highest in the region, explicitly citing the need to anchor inflation expectations after the shock to demand from both the pension withdrawals and pandemic-era fiscal transfers. The central bank's December 2022 monetary policy report described the economy as still working through the correction from 2021's excesses, with growth slowing well below potential into 2023 as the tightening took hold.