Chilean investors are rapidly shifting capital into inflation-linked bonds following a sharp spike in gasoline prices triggered by the Iran conflict. Over 80% of analysts polled by Bloomberg favor bonds pegged to Unidades de Fomento (UF), an inflation-adjusted unit, marking the highest preference since October. This contrasts sharply with the mere five investors opting for traditional peso bonds. The government's 54% fuel price hike last week has sent shockwaves through the economy, prompting the central bank to delay rate cuts and raise its 2024 inflation forecast to 4% from 3.2%.

Bread, fruit and vegetable costs face immediate pressure due to limited storage, while the energy shock threatens to undermine Chile's recent inflation-fighting success. Consumer prices rose just 2.4% annually last month, the lowest since 2020, but that was pre-conflict. Now, nearly half of respondents expect a sharp rebound to 4-4.5% inflation, with one forecasting over 5%.