Page:CREST-Allendes Chile Supply Demand Gap.pdf/19

 

Between October 1970 and October 1971 nominal wages increased by an average of 52% while official prices rose by only 16%. By this measure. the average Chilean enjoyed a real income rise of some 30% during the period (see Figure 8). Because official price rises began to accelerate in the last quarter, real wages declined somewhat, but at the end of 1971 they were still perhaps 25% higher than when Allende took office.Real wages for most workers peaked in January 1972, when Allende granted a general 22% wage increase to compensate for the past year's inflation. An annual wage readjustment is a tradition in Chile, but prices, normally erode nearly all the gain before the year is over. Unlike 1971, this year has been no exception. Real wages declined gradually during the first half of the year and by July were about 10% below their January peak. The sudden jump in official prices in August wiped out essentially all of the workers' remaining gain in real incomes since Allende took office. 