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“The price of the gas we use for cooking is increasing daily. Products like avocado, lemons, meat, tortillas too, ”explains Ruth Montoya, a Mexican who works in a food preparation company for industrial canteens.
These are some of the products that have driven inflation up to 5.8% annually in Mexico, the second highest in Latin America after Brazil.
Amid a slow economic recovery in the region, after a year 2020 in which the pandemic caused one of the worst recessions in decades, inflation has started to rise.
A trend in line with what is happening in the rest of the world.
To this economic “rebound” is added the rise in the price of petroleum, raw materials and problems in global supply chains that have caused the increase in the price of ocean freight and shortages of certain goods such as cars, furniture or building materials.
Analyzing the inflationary situation in the region’s largest economies, experts believe that the upward trend may continue, along with rising central bank interest rates.
Brazil, Mexico, Chile and Peru they have already started to breed them, whereas Colombia could do so in the coming months.
The price of gas in Mexico has skyrocketed.
“In Latin America, countries experienced unusually low inflation last year. It is now clear that this trend is changing,” he told BBC Mundo. Benjamin Gedan |, deputy director of the Latin America program at the Washington Center for Studies, based in Washington.
Expectations that inflation could return to pre-pandemic levels in 2022 “they are not a good consolation for families in distress, including Latin Americans who are frustrated with essentials that have suddenly become unaffordable, including food, ”says Gedan.
Unfortunately, the expert adds, there is no guarantee that inflation will decrease as producers recover from the logistical disruptions caused by the pandemic.
“Commodity prices, for example, are expected to remain high, as will government spending, fueling fears of a deficit. stagflation“, that is, an increase in the price of products in a stagnant economy.
In July, the region’s largest economies recorded annual inflation of 9% in Brazil, 5.8% in Mexico, 4% in Colombia, 4.5% in Chile and 3.8% in Peru.
Argentina’s parallel universe and currency devaluation
The region’s third-largest economy, Argentina, has 51.8% inflation, which is conditioned by other factors that precede the pandemic.
In any case, in the context of the health and economic crisis, “Argentina has an environment of higher inflation due to more lax fiscal and monetary policies,” he said. Robert Wood, Senior Economist for Latin America at the Economist Intelligence Unit.
Argentina has an inflation of 51.8%.
“Argentina has used a series of unconventional tools, including price and wage agreements, price control mechanisms and export restrictions in an attempt to control inflation,” a- he told BBC Mundo.
However, these measures “have had little impact on inflation and, in some cases, have been totally counterproductive”, explains the economist, which the government of Alberto Fernandez refutes.
Another important thing to watch, Wood says, is that the region’s currencies weakened last year, pushing consumer prices, and have yet to show a full recovery.
In fact, in countries like Colombia and Peru, the local currency is still quite devalued.
In Colombia, the peso fell about 11% against the dollar this year, one of the worst declines with the currencies of Argentina, Turkey and Peru.
No more inflation, no more interest rates
“There has clearly been an increase in inflation across the region in 2021, and the latest data shows that rates have peaked for many years,” in Brazil, Mexico, Colombia, Chile and Chile. Peru, exceeding central bank targets, he said. Nikhil sanghani, an economist specializing in Latin America at the British consultancy firm Capital Economics.
As economies have started to reopen, consumer spending habits are starting to normalize, says Sanghani.
Electricity prices in Brazil have increased.
“This drives up the prices of certain services, especially in the hotel», He adds, in particular by increasing restaurants and air fares.
In addition to this general panorama, there are some specific causes in certain countries which are driving the inflationary trend.
For example, a drought in Brazil left reservoir levels in hydroelectric dams at very low levels, causing a shift to more expensive sources of power generation.
Elsewhere, such as Colombia, protests in May resulted in roadblocks and other supply disruptions, a situation that pushed up prices, such as food.
Economists agree that inflation will continue to rise in the region this year, leading to higher interest rates and a impoverishment purchasing power of the population.
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