Chileans tighten belts in face of inflation

By Rodrigo Martinez

SANTIAGO (Reuters) - Flanked by lettuces at his stand at the Chilean capital's largest open air market, Pedro Munoz says inflation at 14-year highs means new clients for him as they turn their backs on costlier supermarkets.

"Things aren't going too badly for me, but the economy is in bad shape. Just watch the news, it's catastrophic," the 65-year-old said, bemoaning sharp rises in fuel and food prices stemming from abroad.

Used to annual inflation of around 2.0 percent in recent years, June's 12-month figure of 9.5 percent has prompted many Chileans to talk of economic crisis, prompting President Michelle Bachelet to try and convince people there isn't one.

The central bank has raised its benchmark interest rate to 7.25 percent, the highest level in nearly a decade, in a bid to curb inflation running at three times the bank's target of 3.0 percent over a 24-month horizon.

Inflation is one reason Bachelet's approval rating is depressed, and if it worsens may help displace the centre-left coalition that has governed Chile since Augusto Pinochet's dictatorship ended in 1990 at elections next year.

"(Public) perception of the economy has grown increasingly pessimistic," said Carolina Segovia, a researcher at pollster the centre for Public Studies (CEP).

"A few years ago, inflation had practically disappeared as a leading problem and is resurgent now," she added, saying issues like crime however continued to be bigger worries.

The pessimism is a stark contrast to windfall profits thanks to high copper prices, which have pushed the fiscal surplus to record highs. Chile is the world's largest copper producer.