Regional inflation hits seven-year low

Inflation has continued to fall across Latin America – our measure of regional inflation (excluding Argentina and Venezuela) dropped below 4% y/y for the first time since 2010 last month. This is due largely to the collapse in Brazilian inflation, which reached a near twenty-year low of 2.8% y/y in the first half of July. But price pressures have also eased further in Colombia, Chile and Peru. This should give most central banks cover to continue easing monetary policy over the coming months. Indeed, in Colombia, Chile and Peru we expect more easing than the consensus and financial markets currently expect. Mexico is the regional outlier, with headline inflation there running at an eight-year high. But the latest data suggest that it is close to peaking and this should be enough to dissuade its central bank from tightening monetary policy further.
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Latin America Economics Weekly

The fiscal risk of rising rates, Mercosur tariff cuts

Central banks were once again in the spotlight this week after the supersized 125bp rate hike in Chile, but one issue that is often overlooked is the damaging impact of rising interest rates on public finances across the region. Brazil is particularly vulnerable on this front, and may resort to financial repression over the medium term to alleviate debt risks. Otherwise, an agreement to cut Mercosur's common external tariff is a positive step towards liberalisation but, as always, domestic politics could be a hurdle for further progress.

15 October 2021

Latin America Economics Update

Brazil: signs of stagflation

The multitude of supply shocks hitting Brazil’s economy are likely to keep inflation at 7-10% well into next year and cause the pace of recovery to slow to a crawl in the next few quarters. Overall, we now expect GDP growth of just 1.3% next year, which sits below the consensus.

14 October 2021

Latin America Economics Update

Chile: front-loaded tightening cycle has further to run

The surprisingly large 125bp rate hike delivered by Chile’s central bank yesterday, to 2.75%, suggests that it will continue to front-load its tightening cycle to clamp down on high inflation. We now expect a further 225bp of hikes in this cycle, to 5.00%, by the end of Q1 2022 (previously 4.00%).

14 October 2021

More from Capital Economics Economist

Emerging Europe Economics Update

What should we make of Russia’s data revisions?

The upwards revisions to Russia’s industrial production figures have raised concerns about the quality of the data but, based on the figures released so far, the new series does seem to reflect economic conditions more accurately than the older series.

29 June 2018

Middle East Economics Update

Egypt rates on hold, easing cycle to resume in September

The Egyptian central bank’s decision to leave interest rates on hold (rather than lower rates) was a response to recently-announced subsidy cuts that will push up inflation. But the easing cycle is likely to resume at September’s MPC meeting. And we still think interest rates will, ultimately, be lowered by more than most analysts expect over the next couple of years.

28 June 2018

Energy Focus

Is the sun setting on the oil market?

Slowing economic growth and rapidly rising fuel efficiency, partly due to a surge in the number of electric vehicles, mean that growth in demand for oil will slow and eventually peak over the next twenty years. At the same time, plentiful oil reserves mean that supply should be ample. Indeed, the marginal cost of production is likely to fall as OPEC loses its pricing power and advances in shale technology force more expensive forms of production out of the market. As a result, we expect real oil prices to trend down over the next two decades.

28 June 2018
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