Latam inflation entrenched but risks persist – IMF

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NEW YORK — Inflation rose the most in 15 years in some of Latin America’s biggest economies last year, but credible monetary policies kept expectations of long-term price increases anchored, it said on Monday. the International Monetary Fund in a blog post.

Brazil, Chile, Colombia, Mexico and Peru saw prices rise 8.3% in 2021, the biggest increase in 15 years and higher than other emerging markets, the IMF said.

Argentina, another major economy in the region, saw inflation rise by more than 50% last year.

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Along with rising import and commodity prices, the IMF said, forex weakness and pent-up consumer demand, embedded increases that adjust for inflation have pushed prices even higher in some cases to through Latam.

But in Brazil, Chile, Colombia, Mexico and Peru, central banks have earned their credibility as policy rates increased last year between 1.25 percentage points and 7.25 percentage points. The policy tightening, alongside forward guidance, helped keep inflation expectations anchored, the fund said.

“Long-term inflation expectations remain relatively well anchored, reflecting confidence in monetary policy to bring inflation back to targets. However, short-term inflation expectations are high, suggesting the need for a continued vigilance,” the IMF said.

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The tightening of monetary policy in the United States, which generally increases the pressure on Latin America and other emerging markets, is another variable that the region must take into account.

“Policymakers could prepare for US monetary policy tightening by extending government debt maturities, reducing fiscal refinancing needs more generally, and limiting the buildup of currency mismatches in sector balance sheets. financial where possible,” the IMF said.

SOCIAL TENSIONS PERSIST

Price pressures, alongside a busy election calendar this year and slowing growth, continue to make social unrest a high regional risk.

“The pandemic hit after a year of widespread social unrest in the region, which had built up over years of economic stagnation following the end of the commodity boom. With a busy electoral calendar looming, social unrest remains a major risk and inequalities will need to be addressed,” the IMF said.

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Brazil, Colombia and Costa Rica will elect presidents this year while referendums and local elections are expected in Chile, Uruguay, Mexico and Peru.

SLOW GROWTH

Last week the IMF https://www.Reuters.com/world/americas/imf-cuts-2022-latam-growth-forecast-mexico-brazil-take-big-hits-2022-01-25 lowered its expectations for 2022 GDP growth in Latin America and the Caribbean of 0.6 percentage point to 2.4% for this year after an estimated rebound of 6.8% in 2021.

The Fund cited slower growth in China and the United States, logistical bottlenecks and the emergence of the Omicron variant in its regional downgrade.

This has left the region facing what the Fund calls three major challenges: ensuring the sustainability of public finances, raising the potential for growth, and doing so in a way that promotes social cohesion and tackles social inequalities.

“Addressing these challenges, which began even before the pandemic, will take time. Policy makers should start now to develop a comprehensive strategy to deal with it and build societal consensus around this strategy,” the Fund said.

(Reporting by Rodrigo Campos, editing by William Maclean)

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