Inflation continues to march higher in Latin America, most recently driven by surging food prices owing to poor domestic weather conditions and rising global agricultural prices. This has led to unrest in Peru, and there is growing political pressure to safeguard consumers through lower taxes, higher subsidies and/or price controls on foodstuffs elsewhere in the region (e.g. Mexico and Chile). Even so, we expect that food (and headline) inflation will remain elevated in the coming months. This feeds into our view that Latin American central banks will raise policy rates further than most analysts expect in this cycle.
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