Thursday, June 1, 2023

America continues in its fight against the inflationary tsunami

America has been experiencing an inflationary spiral for months: Argentina reached triple digits with a year-on-year CPI rise of 104.3%, and although some countries seem to be close to reaching their ceiling, the general outlook for the first quarter of 2023 was marked by fluctuations and the wait.

An apparent respite in the US

The nine rises in interest rates carried out by the Federal Reserve, to between 4.75% and 5% -the highest rate in the last 16 years- have somewhat reduced the inflationary rhythm in the US. but not as desired.

In June 2022, inflation reached its maximum, 9.1%, and since July it has dropped to 5% in March. The latest drop, announced this week, was one percentage point.

However, prices continue without falling and went up in March by one tenth. On May 2, the Federal Reserve will announce whether to continue raising rates or to maintain them.

A record inflation whose core slows down in Colombia

For its part, in March the interannual Consumer Price Index (CPI) in Colombia stood at 13.34%, the highest since 1999, while the accumulated figure for the first quarter was 4.56%, a number in which food had much what to see

The cost of these basic inputs in the basket of Colombians rose 28.1%, for which the Government asked businessmen for measures to lower costs.

“Although inflation continued to rise, each time these increases are smaller and when one looks within the different items, one is already beginning to see a slowdown,” said Scotiabank Colpatria’s chief economist, Sergio Olarte, who predicts that in the end of the year inflation is close to 9%.

The Argentine inflationary loop

However, uncertainty continues in other countries, such as Argentina, which accumulated retail inflation of 21.7% in the first three months of the year, 5.6 percentage points above the 16.1% registered in the first quarter of 2022.

This panorama, aggravated by the 7.7% monthly inflation reported in March (104.3% year-on-year), has as its main consequence the loss of purchasing power of citizens.

The overflow of inflation, one of the country’s chronic problems (with a peak of 3,079% between 1989 and 1990), brought the year-on-year index to three digits in February and is heading for 110%, according to the expectations revealed by the Central Bank .

“Having a tight monetary policy, as well as a fiscal policy that is in line with what is in the program supported by the Fund, would be particularly important,” said the deputy director of the IMF’s Research Department, Petya Koeva, this week at the framework of the spring meetings in Washington.

Mexico: Inflation contained, but still high

On the other hand, inflation in Mexico fell to 6.85% annually in March, the lowest level since October 2021 and the second consecutive monthly decline, according to the National Institute of Statistics and Geography (Inegi).

However, in this country the CPI has been above the target rate of 3% of the Bank of Mexico (Banxico) for almost 50 consecutive fortnights, which does not foresee this objective until the end of 2024.

A combination of factors raises inflation in Chile

Inflation in Chile registered an increase of 1.1% in March, after the decrease of the previous month, and accumulated an advance of 11.1% in 12 months, according to the National Institute of Statistics (INE).

Experts point to early withdrawals from private pension funds, government aid to deal with the pandemic, and the international situation as the main causes.

To face the rise in prices, the Central Bank raised the referential interest rate in October, called the Monetary Policy Rate (TPM), to 11.25%, its highest level since 2001.

“Reducing inflation is an unavoidable condition for economic performance to improve sustainably,” added the bank, which estimates that the 3% target can be reached by the end of 2024.

Peru and the distant ghosts of hyperinflation

For its part, in Peru the increase in prices in the first quarter of 2023 was 2.1%, less than that of most neighbors, but worrying for citizens who remember the ravages of hyperinflation in the 1980s, which ended at 7.649% in 1990.

Inflation in March registered a rise of 1.19%, the highest rate so far this year.

Despite the fact that the figure seems low, the country is used to lower inflation data and, within the political landscape, there is a kind of agreement to leave monetary policies out of politics, so these increases have had a strong impact .

Along these lines, the Central Reserve Bank estimates that annual inflation will drop to 3%, once food prices begin to decline.

A slow and forced fall in Brazil

Brazil continued to decrease the rate in the first quarter and stood at 4.65% interannual in March, almost one point less than in February (5.60%).

“There is a downward trend. With the interest rate at the level it is (13.75% per year) it was expected, although this reduction is having a slightly higher cost “which is reflected in a paralysis of the economy, Sillas Cezar, professor of Economics, told EFE at the Armando Alvares Penteado Foundation (FAAP).

Cezar assures that there is room for the Central Bank to initiate a drop in interest rates that will boost the economy, something that the federal government is demanding.

Despite the moderation, inflation in Brazil remains above the target for this year, which is 3.25%.

Optimism in Uruguay

The inflationary decline in Uruguay since the end of 2022 was slowed down by the increase in the prices of some foods due to the drought, and although fruits and vegetables have been rising above 10% for two consecutive months, inflation has already stood at 7.3% since an 8.29 in 2022.

“Inflation will continue to drop because the increases in fuel, meat and wheat, caused by the effects of the war, will not be repeated,” Giuliano Cantisani, an expert economist in economic analysis and forecasts, told EFE.

He assures that, given Uruguay’s history, the country “has learned to deal with this relatively high inflation” through various mechanisms, such as indexed units, units of value that are readjusted according to inflation measured by the CPI.


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