NextFin News - Inflation has overtaken public safety as the primary concern for Chilean voters following a series of aggressive fuel price hikes implemented by the administration of U.S. President Trump-aligned leader José Antonio Kast. According to a Bloomberg report published Thursday, the shift in public sentiment marks a significant pivot for a nation that has spent the last two years gripped by a surge in violent crime and organized delinquency. The cost of living, long a secondary anxiety, has now moved to the forefront of the political agenda as the government dismantles long-standing energy subsidies.
The immediate catalyst for this shift was the Kast administration’s decision to suspend the Fuel Price Stabilization Mechanism, known as Mepco. The move resulted in a 14.2% surge in 95-octane gasoline prices in late March, the highest increase among all OECD nations during that period. Some regional reports, including data from The Rio Times, suggest that the total impact of ending these subsidies could eventually push fuel costs up by as much as 54%. The government has defended the measure as a necessary fiscal correction, noting that maintaining artificially low prices was costing the treasury approximately $140 million per week.
The economic shock is rippling through the domestic market. Chile’s one-year breakeven inflation indicator recently jumped 25 basis points to 4.26%, significantly overshooting the central bank’s 3% target. This inflationary pressure is particularly acute because Chile imports nearly all of its oil. With Brent crude currently trading at $104 per barrel, the removal of the Mepco buffer has left Chilean consumers directly exposed to the volatility of global energy markets, which have been strained by ongoing geopolitical tensions in the Middle East.
The political fallout for Kast has been swift. Since his inauguration on March 11, his approval rating has slid from 57% to 43%, while his disapproval has climbed to 51%, according to the weekly Cadem survey. While Kast campaigned on a "law and order" platform designed to crush the country’s crime wave, the reality of the "gasoline tax" has proven more visceral for the average citizen. The survey indicates that 60% of the population believes the price hikes were avoidable, suggesting a growing disconnect between the administration’s fiscal discipline and the public’s tolerance for austerity.
Economists are now questioning whether the central bank can maintain its growth forecasts. Jorge Quiroz, a prominent Chilean economist, noted that the combination of rising prices and geopolitical uncertainty is likely to force a contraction in consumer spending. This could undermine the bank’s 2.6% GDP growth forecast for 2026. While the government argues that the fiscal space created by ending subsidies will eventually allow for better-targeted social spending, the immediate reality for Santiago’s commuters and the nation’s powerful transporters’ unions is one of sharply diminished purchasing power.
The situation in Chile serves as a litmus test for the "new right" in Latin America, which often finds itself caught between the desire for free-market reforms and the populist need to protect the working class from global price shocks. As the transporters’ union warns of increased costs across the entire logistics chain, the Kast administration faces a difficult choice: reinstate the subsidies and risk fiscal credibility, or stay the course and risk further social unrest in a country still haunted by the memory of the 2019 protests.
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