A high and persistent inflation, destined to keep the various world economic blocks under stress for a long time, is also a cause for concern for the stability of the various regional balances, also in Africa and Latin America. The high prices that deteriorate incomes and cloud growth prospects force, for better or for worse, to also change the economic policy offers of the various states. And where there is not ample room for manoeuvre, especially for fiscal counter-offensives, social and political tensions could inevitably be more likely to hook on to the economic situation.
Inflation in Latin America
High prices and scarce goods worry Europe about the effects of stability in Africa; in the US you look carefully at what happens in Latin America. The International Monetary Fund has recorded that inflation in the major economies of Latin America is the highest in the last 15 years. In the first year of the pandemic, average inflation in Brazil, Chile, Colombia, Mexico e Perù however, it was below the average for other emerging market economies. It is now positioned at very high levels, averaging 8% year-on-year in October and in the case of Brazil it exceeded 10,5%.
Food and energy goods
The rise of food prices it's partly driving the surge. The causes are global and valid for all latitudes: first of all the shocks in the value chains during and after the acute phase of the Covid and then the tightening of the international markets due to the Ukrainian conflict. According to the studies of the Fund, for Brazil, Chile, Colombia, Mexico and Peru "a 10 percentage point increase in global oil prices would lead to an increase in inflation of 0,2 percentage points, while a 10 percentage point increase in global food prices would lead to an increase in inflation of 0,9 percentage points. A combined 10 percentage point shock to oil and food prices would raise inflation by 1,1 percentage points.
Income support and inequalities
Add that also in Latin America the various income support measures have stimulated the question substantially and contributed in part to triggering the current inflationary flare-up. Inflation does not affect all economies equally, in fact it is a regressive tax which penalizes above all the poorest sections of the population. Even the most vibrant economies of Latin America exhibit very high levels of inequality and the erosion of real incomes, due to rising food and energy prices, is at risk to increase social tensions in the most economically fragile regions (food prices account for about a quarter of the average consumer basket).
Core inflation in Latin America
THEcore inflation, which excludes food and energy prices, has outpaced its pre-pandemic trend, averaging 5,9% year-on-year in IMF-study countries (October 2021 data).
The moves of the central banks of Latin America
In this scenario the South American central banks, which despite the efforts made in recent years obviously cannot exploit the same level of credibility as Western central banks, are faced with the dilemma of "what to do" in order not to choke the wartime economy. The Central Bank of Brazil, led by Roberto Campos Neto, was the first to change course in March last year and others have followed suit, leading to rate hikes ranging from 1,75 to 9,75 percentage points compared to end-2020 levels.
The risks of capital flight and currency depreciation
In some South American economies it also remains an insidious country risk which, in the event of an increase in the level of global and regional uncertainty, could push investors to do so outflow of significant capital towards economic systems considered safer. This further potential shock could also trigger a spiral of currency depreciation, consequently increasing inflationary pressures and socio-political tensions. A chain of patchy regional instabilities that would not leave even the United States indifferent.
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