Fuel prices spike in Chile, posing early political test for Kast

Empty gas stations and price boards still displaying ​pre-hike rates captured Chileans' rising concerns as a steep fuel ‌price ​hike announced by the government took effect on Thursday, immediately testing the strong public support that propelled right-wing President Jose Antonio Kast into office. The new administration, inaugurated on March 11, activated a clause in its fuel-stabilization mechanism to quickly bring domestic prices in ‌line with surging international rates linked to conflict in the Middle East. With public finances under strain, officials said the government could no longer absorb the fast-mounting cost shock, prompting the abrupt adjustment now unfolding at pumps across the country.

Early Thursday, central Santiago gas stations appeared deserted, with premium fuels sold out after long lines the night before. "I came to buy 'gold,'" said driver ‌Valentina Ortega, referring to gasoline, now a high-demand commodity.

"Honestly, I find this terrible. It's been so few days and he's already doing things that affect the entire ‌middle class and lower class - but nothing is known about what he's going to do with the upper class," she said about Kast. The hike lifts the price of 93-octane gasoline by about 30% and diesel by 60%. Lines began forming Monday night after the announcement, and some stations ran out of supply.

"Nobody in any country is happy when gas prices go up. It immediately threatens his popularity in the short ⁠term and creates ​governance challenges depending on how long prices remain ⁠high," said Cate Klemme of Latin America advisory firm Southern Pulse. A survey by pollster Cadem showed Kast's approval dipping four points to 47%, with 59% saying the hike could have been avoided. The poll also found ⁠disapproval exceeds approval for the first time, and 54% expect further increases in fuel prices.

Francisca Alfaro, an attorney who was filling her gas tank in Santiago, said she was already bracing ​for higher prices across the board. "Everything is going to go up because everything in Chile is transported by land. So food, produce, vegetables, all of that is ⁠going to become more expensive," she said.

Finance Minister Jorge Quiroz said future price changes will be gradual and that any drop in crude prices will be passed through quickly. To ease the impact, the government announced measures including ⁠freezing ​public transport fares through December, a move that will offset part of the fuel-price shock, according to an analyst note by JP Morgan. The jump in gasoline and diesel, however, could still trigger nonlinear inflation pressures, the firm said. Chile's central bank revised its inflation forecast a day earlier, indicating that it will see a significant increase in the second ⁠quarter, reaching figures of around 4% annually.

Kast, Chile's most right-leaning leader since its return to democracy, has blamed former leftist President Gabriel Boric for strained public finances and ⁠said he will lead an "emergency government" focused on ⁠recovery. Guillermo Holzmann, a political expert at the University of Valparaiso, said Kast was "paying a significant political-social cost given the public rejection of a measure of this nature, yet hoping to reap, at the end of this crisis, a better position in the eyes ‌of the public."

The hikes may ‌fuel social unrest and protests, including by public transport operators, analysts said.