LATAM inflation a growing risk

The background: Fear of inflation is particularly strong in Latin America, where economies tend to depend on imports of raw materials and energy. In fact, it has been a pernicious problem since 1945, and it got out of control in many countries, such as Argentina, Venezuela, and Cuba, in the 1980s and 1990s.

News: The Central Bank of Chile surprised everyone by doubling interest rates by 75 basis points to 1.5%, the highest increase since August 2001. The bank stated that the measure was necessary to "avoid the accumulation of macroeconomic imbalances which, among other consequences, could lead to a more persistent rise in inflation. " The National Institute of Statistics of Uruguay showed inflation rates higher than those predicted by the government, reaching 7.59% year-on-year. Furthermore, in Colombia inflation is being significantly higher (4.44%) than its central bank's 3% target.

Why is this important? Chile had already started to tighten its monetary policy, but the doubling of interest rates came as a surprise. Colombia is expected to raise rates for the first time in five years later this month. And the central banks of Peru, Brazil and Mexico have also tightened their policy in the last three months. The main objective of México’s Central Bank is to maintain a low and stable inflation. Overall, Latin American governments view inflation as a present and growing risk in the coming months.

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