Banco Central warns of inflation risks even as Chile's economy stalls.

The Central Bank of Chile held its policy rate at 4.5% yesterday for a fifth consecutive meeting, but what rattled markets was not the decision itself —widely anticipated— but rather the tone of the accompanying statement. Analysts read a distinctly hawkish message: the monetary authority warned about the resurgence of inflationary risks tied to the conflict in the Middle East, flagged that investment has decelerated more than expected in the second quarter, and emphasized that the future rate path will be assessed meeting by meeting. Markets took note: expectations of a cut for the remainder of the year all but evaporated, and attention now shifts to September's Monetary Policy Report, which will need to deliver a sharper read on the price trajectory under alternative scenarios. May's Imacec, which fell 0.9%, came in below projections, and the non-mining component grew a mere 0.7% year-on-year — signals that complicate the narrative of a solid recovery just as labor costs accelerate.

That tension between a monetary policy that cannot ease and an economy that fails to gain traction played out clearly in local markets. The IPSA closed in the red and slipped below 10,900 points in the session prior to the Central Bank's decision, dragged down by declines in copper, gold and silver. The red metal hovered near US$6.35 per pound, lacking the momentum to offset selling pressure. The Chilean peso, paradoxically, was the best-performing emerging market currency of the day: the dollar completed two sessions of sharp declines and closed around $930, accumulating a loss of nearly $20 in 48 hours. The impulse came primarily from geopolitical de-escalation in the Middle East, with oil retreating toward US$80 per barrel —WTI shed 3.2% to US$77.05 and Brent lost 3.5% to US$82.85— easing the external inflationary pressures that the Central Bank itself had flagged as a risk.

Against that backdrop of restrictive monetary policy and weak activity, the bi-minister of Economy and Mining, Daniel Mas, warned Chile's Confederación de la Producción y del Comercio to expect "months of bad news" in the labor market, cautioning that winter seasonality, compounded by the effects of recent storms, will weigh on employment figures to be released by the INE this week. Unemployment already reached 9.4% according to the latest available statistics. The meeting with the CPC centered on the government's "Modo Empleo" initiative, while SOFOFA, in its annual address, proposed creating 500,000 jobs through an agenda of training, investment and labor flexibility, and estimated that a four-percentage-point cut in the corporate tax rate —from 27% to 23%— could generate at least 80,000 additional direct jobs over four years. The debate over the tax reduction is not innocuous: Universidad Adolfo Ibáñez economist Claudio Agostini pushed back against Arthur Laffer, the former Reagan adviser who visited Chile to endorse the sweeping reform, recalling that a similar proposal enacted in Kansas in 2012 led to a fiscal deficit that had to be reversed in 2017.

The day's most explosive debate, however, came from the political flank. The president of the Partido Republicano, Senator Arturo Squella, proposed partially or fully privatizing Codelco to bring in private capital to a company saddled with debt of roughly US$25 billion —four times that of any other major copper miner, according to board chairman Bernardo Fontaine himself— and whose per-tonne costs have risen by as much as 80% in four years. The government of President José Antonio Kast immediately ruled out altering state ownership of the miner, with bi-minister Mas clarifying that the administration is only assessing the sale of "non-essential" assets from subsidiaries. The opposition response was blunt: the Partido Socialista accused the government of pursuing a "covert privatization," and former minister Álvaro Elizalde argued that the Republican proposal crosses a line that "not even the dictatorship dared to cross." The controversy is significant beyond the symbolic: Codelco is the world's largest copper producer and its financial situation has direct implications for Chile's fiscal budget.

As that debate unfolded, SQM —Chile's other major mining bet— revealed the scale of its strategic pivot toward copper: the company, known globally for its dominant position in lithium, holds 99 copper exploration targets in the north of the country, covering more than 460,000 hectares, with 84 projects where copper is the primary metal and 16 already in advanced drilling stages, most in the Antofagasta Region. The move reflects both the volatility of the lithium market and sustained appetite for copper in the context of the global energy transition. Cutting the other way, Canadian miner Lundin Mining reported that its Caserones operation has remained without power since July 18, when rain and snowfall damaged the transmission line; reactivation is estimated at two to three weeks, with a direct impact on quarterly output.

The storms that battered the country's north left a broader mark. Agriculture Minister Jaime Campos declared an agricultural emergency in areas of Atacama, Coquimbo and Valparaíso, and used the occasion to sharply criticize the 12.5% U.S. tariff on Chilean fruit, calling it an "arbitrary action that violates the FTA." Iván Marambio, president of Frutas de Chile, expressed cautious optimism about the possibility of obtaining exemptions for grapes, blueberries, cherries and other export products. A new frontal system threatens to arrive Thursday from Maule southward, though authorities describe it as lower intensity.

In the power sector, first-half results delivered two positive reads. Enel Chile, the subsidiary of Italy's Enel that trades on the Santiago Stock Exchange and whose shares have presence in international markets, reported earnings of US$272 million in the first half, up 11%, driven by a renegotiation of the gas contract with Shell that contributed US$140 million and offset weaker hydrology. Engie, for its part, posted its highest profit of the decade with US$205 million in earnings, lifting Ebitda 11% to US$400 million, while aggressively ramping up investment in wind farms —up 44% to US$154 million— and battery storage systems, which rose 51% to US$111 million. Both results reflect the sector's dual dynamic: pressure from lower water availability and a structural opportunity in