And although Focus Economics estimates that Mexico closes 2022 with inflation of 7.5% per year, there are other countries with higher inflation:
Costa Rica: 9.5%
“The weaker currencies and unanchored expectations in some countries will keep inflation high this year in Latin America, despite higher interest rates and government subsidies. However, the discrepancy between countries will be huge”, recently indicated the Focus Economics.
And it is that despite the tightening of monetary policy in various Latin American countries, inflation has not subsided as would be expected in an ideal scenario. For example, in July, inflation in the United States slowed down during July after successive increases in the interest rate.
The Focus Economics suggests that there are a series of factors specific to the region that would mean that high rates do not have such a broad effect in curbing inflation: informality, low bank penetration and use of cash, less credibility in central banks given the history of high inflation in the region.
Mexico and Latin America at risk of stagflation
Some countries such as Chile and Colombia have experienced advances in their growth, the Latin American region will continue to have growth problems. Focus Economics estimates that regional economic expansion will be just 2.5% in 2022.
Among the main factors are high inequality, poor human capital in some countries, and governance problems.
“Latin America is the most unequal region in the world, according to data from the World Bank’s Gini Coefficient. This translates into frequent social unrest, like the one seen in Chile in 2019, or more recently this year in Ecuador and Peru. Inequality is also likely to be a factor behind the high level of crime.
In this sense, the low growth in Latin American countries could continue over time, in a context of inflation, especially in raw materials and agricultural products. The combination of these phenomena is known as stagflation.
The Bank of Mexico, for example, still estimates that there are risks with a considerable upward bias for inflation in the coming months. And at the same time, Bank of America forecasts that the country will have a growth of 0% in 2023 .