Inflationary shock due to war threatens Latin American economies

The rise in commodity prices caused by the Russian invasion of Ukraine is a “double edged sword” for Latin American economies, as it boosts exports but also hurts consumers and calls for tighter monetary policy, according to Oxford Economics.

“Rising commodity prices are usually good news for Latin AmericaJoan Domene, a senior economist at Oxford Economics, wrote in a report published Friday. “However, skyrocketing prices also threaten the region’s fragile economic recovery, as inflation reduces purchasing power and prompts central banks to tighten monetary policy.”.

Policymakers in Latin America are rushing to withdraw emergency stimulus after inflation accelerated beyond their target range in Brazil, Mexico, Colombia, Chile and Peru.

The region is partially insulated from any fallout from the Ukraine crisis due to low trade and financial ties with the countries involved, Domene noted.

Latin America is a major exporter of products such as crude oil and soybeans, so higher prices for commodity exports will also soften the blow, according to Domene.