Chile's inflation increases sharply.

Aside from the fact that Chile's economy is regarded as one of the most open in the Latin America region, Chile's consumers benefit from the stability of the country's banking system. A September 7, 2007 study by the International Monetary Fund (IMF) said the following about Chile's banks. "Since 2001, Chilean banks have had Latin America's lowest nonperforming loan (NPL) ratios, and returns on both assets and equity have been among the highest and most stable in the region."

But, says the IMF, the country's openness cuts both ways. "Even so, given the openness of Chile's economy and financial system, financial institutions remain vulnerable to external shocks."

A more serious problem for Chilean consumers, though, are current, nearly universally expressed worries about inflation. An October 4, 2007 brief from The Economist (London) says, "Chile is experiencing its sharpest inflationary surge in years, with price increases in recent months coming in well above expectations." In September 2007, says The Economist, inflation surged 5.8 percent when compared with the same month in 2006.

The sharp spike in inflation is well above the central bank's target range of 3.0 percent with a 1.0 point maargin allowed plus or minus.

"Food costs, which spiked by 2.5% month over month, contributed most to the increase in headline inflation." Two factors combined to inflate food prices. The first is a general rise in international prices. And the second is environmental--a very harsh winter in Chile, which damaged some food crops.

Another economic pressure point was reported by Moody's Investors Service (New York) in August 2007. "Chile's economy is growing at rates above its potential."

This leads to capacity restraints, meaning demand exceeds supply driving prices upward. The New York Times (New York) reported that Chile's economy expanded 6.1 percent in August 2007 "the biggest expansion since 6.3 percent growth in the first quarter of 2005." The IMF estimates Chile will end 2007 with inflation at 3.9 percent, and 2008 inflation at 4.1 percent.

CHILE'S ECONOMY IS IN DANGER OF OVERHEATING 

The population growth rate for Chile is well below the regional average, due in part to a birth rate of 15 per thousand inhabitants, which is lower than the average of 21 per thousand for South America. Job creation has not kept up with growth of the labor force in recent years, but it is likely that the situation will improve in 2007. Unemployment is running about 7.8 percent (2006), and this continues to undermine consumer confidence.

Chile's population reached 17-million people mid-2007, which amounted to 4.5 percent of South America's 381-million inhabitants. According to data released by the Population Reference Bureau (PRB), Chile's population will reach 19-million by 2025. Also, according to that source, Chile is going to have a population of 20-million people in 2050.

The PRB revealed that a substantial 88 percent of Chile's population lived in urban areas during 2007, and that the country's population density is a comparatively low 58 people per square mile. Chile is roughly the same size as Turkey in land area, but Turkey has nearly 4.5 times as many inhabitants. The CIA's World Factbook, indicates that 24 percent of Chile's population was birth to 14 years old in 2006, while 67 percent was 15 to 64 years old, and 9 percent of the populace was 65 years of age and over.

CIA statistics revealed that the country's population growth rate was 0.92 percent in 2007. According to the United Nations Population Division, in the year 2050, 20 percent of Chile's population will be birth to 14 years old, while 56 percent will be aged 15 to 59, and 24 percent of the populace will be 60 years of age and over.