Inflation hits Latin America and rekindles the ghosts of old crises

Inflation hit Latin America in 2021 like no other region, leaving its largest economies, Brazil and Mexico, with their highest rises in years, and exacerbating long-standing price problems in countries like Argentina.

Latin America will close the year as the region with the highest price increase in the world, according to the International Monetary Fund (IMF), which in its latest projections estimated regional inflation of 9.3% in 2021 and 7.8% in 2022.

This is the picture of rising prices in Latin America, which suffers from the ups and downs of the pandemic and problems in supply chains in combination with its long-standing problems.

Brazil and Mexico: the big ones in trouble

In Brazil, the leading Latin American economy, at the end of November inflation had a year-on-year rise of 10.74% and a variation of 9.26% between January and November, a level far from the 3.75% set as a goal for 2021 by the Central Bank.

As in other countries, there has been a strong impact on the price of gasoline, which shot up 50.7% in the 12 months ended in November.

Economists estimate that Brazil will end 2021 with inflation of 10.18%, the highest level since 2015, when it posted a 10.67% increase in the consumer price index (CPI).

In Mexico, the second largest economy in the region, inflation registered a year-on-year rise of 7.37% in November, the highest level in two decades, given the rise in basic inputs such as agriculture and energy.

The figure is more than double the goal of 3% of Banco de México (Banxico), which has responded with five consecutive increases to the interest rate, although it considers that “inflation is transitory in nature”.

The Government has defended that it is a phenomenon “imported”From the United States, its main trading partner.

Venezuela and Argentina: old problems

Inflation in Venezuela from January to November was 631.1%, while the interannual between the eleventh month of 2020 and that of 2021 was 1,197.5%.

The data, which in any other country would be a sign of a hecatomb, is good news for the Venezuelan economy, which entered hyperinflation in November 2017 and, to overcome it, it must run 12 months with a price increase of less than 50% in each one.

In November, Venezuela completed 11 months below that percentage, which could end this black period, if it also meets the target in December.

The star economic measure in this 2021 has been the entry into force on October 1 of a new currency, the digital bolivar, after the elimination of six zeros from the previous one, the sovereign bolivar, which represents the third reconversion so far century.

High inflation is also one of the main macroeconomic problems that persist in Argentina, where in the last two decades, except for a few years, annual inflation rates greater than two digits have been registered.

The CPI stood at 51.2% year-on-year in November, and would close the year with an increase of 51.1%, according to the private consultants surveyed by the Central Bank, which would exceed the rate of 36.1% in 2020 and the initial budget guideline by 2021 29%.

The expansionary policy, applied to address the effects of the pandemic and stimulate the economy after the strong recession of 2018-2020, has boosted prices, with a Central Bank that has resorted to monetary issuance to finance the Treasury.

The Government, without many alternatives, insists that high inflation is a problem “multicausal”, Not strictly monetary, and has chosen to keep regulated prices at bay or to freeze prices in mass consumption products, such as food and medicines.

Chile: memory of the crisis

Inflation in Chile reached levels not seen in more than 13 years, since the financial crisis of 2008, and in November it rose to a year-on-year rate of 6.7%.

Greater liquidity, as a result of social benefits and early withdrawals of 10% of pensions, measures to face the COVID-19 crisis, are the main reasons why this index has soared.

Due to the fiscal stimulus injected for the crisis, more than US $ 35,000 million in aid came into circulation, in addition to the more than US $ 450,000 million for pension withdrawals.

Inflation puts pressure on the Central Bank, whose target range is between 2% and 4%, for which it has raised the benchmark interest rate to 4%, its highest level since 2014, intensifying the withdrawal of the monetary stimulus in the face of inflationary risk .

Colombia and Peru: in search of balance

Although it is below its peers in the region, Colombia is not immune to the generalized increase in inflation, which in the data up to November stood at 4.86% per year, well above the goal of 3% of the Banco de la Republic.

Among the factors are the depreciation of the peso against the dollar and the reactivation of consumption after the slowdown caused by the pandemic in 2020, when the CPI was 1.61%, the lowest in the series of the National Administrative Department of Statistics (DANE) .

In addition, an analysis by BBVA indicates that the increases in salaries, rates and pensions that take place in the first months of the year will increase inflationary pressures.

For the minimum wage of 2022, the Colombian president, Iván Duque, proposed an unprecedented increase of 10.07% to exceed one million pesos (about US $ 257).

The outlook is also more balanced in Peru, where the annual inflation rate in November fell to 5.66% after the peak of 5.83% in October, amid increases in gas (10.5%) and water (3.4%).

The inflation expectation at the end of 2021 is 3.71%, slightly above the target range of 3%, according to figures from the Central Reserve Bank of Peru (BCR), whose president, Julio Velarde, stated in November that “It is a worldwide phenomenon and it is not that difficult to control”.

The increase in inflation has not reduced the expectations of an increase in GDP for 2021, which remain between 8.5 and 12.7% among economic analysts.