Economic Indicators: GDP, Inflation, and Employment in Chile

Why Real GDP Matters for Measuring Economic Growth

R: Real GDP represents the valuation of all goods and services at constant prices from a base year. Thus, it can determine the actual production of a country and its economic growth.

Calculating Inflation with Nominal GDP

A: Yes, it is possible to measure changes in prices in an economy by measuring all the variations of goods and services produced within a reference period. Therefore, nominal GDP can be used to determine inflation.

Understanding Trend or Potential Product

Trend or potential product refers to the government’s projection of the country’s economy, based on the assumption of full employment.

When Do Output Gaps Occur?

Output gaps occur when there is a difference between real and potential output. The output gap measures the difference between actual production and what the economy could produce at full employment, given existing resources.

  • If the gap is positive, it indicates that the economy is producing more than projected, potentially leading to inflation. The government may need to intervene to curb this.
  • If the gap is negative, it indicates that the economy is producing less than projected, suggesting underutilized resources. An economic measure to improve this would be to hire more people to optimize production. The central bank might increase interest rates to encourage production.

Policy Measures Based on Output Gap Direction

If the gap is positive (indicating overproduction), the central bank may need to reduce production for a period by lowering interest rates, discouraging companies from producing excessively.

Inflation: A Key Economic Variable

What Does Inflation Measure?

Inflation measures the purchasing power of money over time. It can also be said to represent a sustained rise in prices.

When there is a lot of money in circulation, the currency tends to devalue, and prices rise. Consequently, people can buy fewer goods and services with the same amount of money, affecting their welfare.

What Is the Impact of Inflation on the Economy?

High inflation can be risky for the economy as it affects financial decisions, such as debt and investment. It can distort the normal functioning of the economy, although it may also signal economic recovery.

As we know, when prices rise, consumers buy less, leading to decreased demand, which is detrimental to production and the national economy. However, it’s important to note that inflation can have varying impacts. For instance, after the 2010 earthquake in Chile, inflation rose due to increased construction activity, which was beneficial for the economy as it stimulated growth and reduced unemployment.

Is Inflation in Chile a Measure of Purchasing Power Loss?

Yes, because when there is a lot of money in circulation, the currency tends to devalue, and prices rise. This means people can buy fewer goods and services with the same amount of money, negatively impacting their welfare.

Is Low Inflation Always Good for the Economy?

If inflation is low (meaning there is little money relative to goods and services), prices may start to fall. This can be detrimental to the economy because if prices fall continuously, people may delay purchases, expecting even lower prices in the future. Consequently, companies might postpone investments, ultimately depressing economic activity.

Inflation in Chile in the Last 6 Months (Using CPI)

MonthCPIInflation Rate
September 2010102.18
October 2010102.280.09786651%
November 2010102.350.068439577%
December 2010102.410.117244748%
January 2011102.760.283009661%
February 2011102.980.214091086%

Interpreting Inflationary Trends: Deflation and Stagflation

The data indicates an upward trend in inflation in Chile.

  • Deflation refers to a sustained decrease in the general price level.
  • Stagflation refers to a situation with high unemployment (stagnation) and high inflation, where there is no production and prices are rising.

Understanding Full Employment in Macroeconomics

Full employment is an economic concept referring to a situation where all working-age citizens who want to work are employed. In other words, labor demand equals labor supply at the given level of real wages.

According to this definition, unemployment in a situation of full employment would be “0.” In practice, “full employment” is considered to exist even with a low unemployment rate, which accounts for people transitioning between jobs (frictional unemployment) and those who are unemployed but do not want a particular job due to personal expectations or circumstances. These individuals may or may not be registered for unemployment benefits and may or may not be considered when determining if an economy is at full employment.

In short, full employment occurs when there is low unemployment, typically around 5-6% of the population in countries like Chile.

Understanding Employment in Chile

Employment is synonymous with occupation. It refers to an occupation that generates economic rewards, either monetarily or in-kind (quantified in monetary terms), for working one hour or more. Employed individuals should belong to the working population, aged 15 or older.

Employment is measured through a survey conducted by the INE (National Institute of Statistics).

Understanding Unemployment in Chile

Unemployment refers to a person who has been seeking employment for more than a month but cannot find it. There are two types of unemployed individuals:

  • Unemployed: Those who previously held jobs but lost them and are now looking for new ones.
  • First-time job seekers: Individuals seeking employment for the first time but unable to find it.

Which Component Has Most Affected the Unemployment Rate?

The main component that has affected the increase in unemployment is the rise in first-time job seekers due to population growth.

Employment and Unemployment Levels in Chile

Unemployment in Chile stood at 7.1% in the September-November 2010 quarter, its lowest level so far that year.

This figure represents a 0.5 percentage point decrease from the previous quarter (August-October), when unemployment reached 7.6%, aligning with market forecasts, according to the National Institute of Statistics (INE).

Due to the international crisis and the effects of the February 27 earthquake, unemployment in Chile reached 9% in the January-March quarter, decreasing to 8.4% in April-June and 7.6% in August-October.

Agriculture, trade, and industry sectors positively impacted employment in the September-November period, while self-employment decreased and wage increases continued. According to the INE, this indicates an improving economy with more high-quality formal jobs.

Employment increased by 1.0% during this period, reaching 7,311,220 people, while the labor force grew by 0.4% to a total of 7,865,880 people, of whom 554,660 were unemployed.

By gender, unemployment among men was 6.2% and among women 8.3%.

The employment rate for September-November stood at 54.8%, compared to 54.4% from August to October. The participation rate reached 59.0%, with 72.3% for men and 46.2% for women.

In the metropolitan region of Santiago, which accounts for 40% of the country’s labor force, unemployment stood at 7.0%, five points lower than in the previous rolling quarter.

The regions with the highest unemployment rates were Los Ríos (south) at 8.3%, Valparaíso (center) at 8.1%, and Biobío (south) at 7.5%.

The regions with the lowest rates were Magallanes (south) at 4.1%, Aysén (south) at 4.6%, and Tarapacá (north) at 5.0%.

By sector, the most dynamic in creating jobs in the last quarter were agriculture (6.1%), mining (2.8%), and trade (1.9%), while fishing (-5.4%), real estate (-4.0%), and electricity, gas, and water (-2.3%) experienced declines.