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Is high inflation here to stay in Latin America?

Following a surge in inflation across the region this year, we think that headline rates are at, or close to, a peak in major Latin American economies. But strong underlying price pressures will prevent inflation from falling below central banks’ targets over the next year or so. Monetary tightening cycles therefore have a lot further to run across the region, especially compared to elsewhere in the emerging world.
Nikhil Sanghani Emerging Markets Economist
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More from Latin America

Latin America Economics Update

Banxico to take its foot off the brakes

Mexico’s central bank (Banxico) hiked interest rates by 75bp, to 8.50%, for a second consecutive meeting yesterday but, amid mounting evidence that the economy is struggling and with inflation close to a peak, we think that the pace of tightening will slow from here. Our forecast is for the policy rate to reach 10.00% by year-end, which is a touch more hawkish than investors anticipate.

12 August 2022

Latin America Data Response

Mexico Industrial Production (Jun.)

Mexico’s industrial sector posted sluggish growth of just 0.1% m/m in June and the data suggest that the first estimate of Q2 GDP growth may be revised down. The backdrop of weakness in the US means that we expect Mexican industrial activity to stay soft over the rest of this year. But that is unlikely to deter Banxico from delivering further monetary tightening, including another 75bp hike, to 8.50%, later today.

11 August 2022

Latin America Data Response

Brazil IPCA (Jul. 2022)

The sharp fall in Brazilian inflation to 10.1% y/y in July from 11.9% y/y in June was mainly a result of tax cuts on energy; inflation in most other price categories remains extremely strong. Even so, at the margin, this data release increases the likelihood that the central bank will keep interest rates unchanged (rather than opt for a final 25bp hike) at its next meeting in September.

9 August 2022

More from Nikhil Sanghani

Latin America Data Response

Mexico Industrial Production (Jul.)

The stronger-than-expected 1.1% m/m rise in Mexico’s industrial production in July provides some encouragement that the economy fared well despite the onset of a third virus wave earlier this quarter. That said, the latest surveys point to a worse performance in August, while weakening US demand and ongoing global shortages will hold back Mexican industry over the coming months. CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

10 September 2021

Latin America Economics Update

Peru: BCRP stepping up pace of tightening

Yesterday’s larger 50bp rate hike, to 1.00%, delivered by Peru’s central bank (BCRP) suggests it is becoming increasingly concerned about the inflation outlook. With inflation set to stay above the 1-3% target range over the coming quarters, and GDP growth likely to beat expectations, we now think that the policy rate will rise to 2.00% by end-2021 and 3.50% by end-2022 (previously 1.25% and 2.75%).

10 September 2021

Latin America Data Response

Mexico Consumer Prices (Aug.)

The drop in Mexico’s headline inflation rate to 5.6% y/y in August masks a further rise in core inflation, to 4.8% y/y, which will be a concern for the central bank. This suggests that its gradual tightening cycle has further to run; we expect another 25bp rate hike to 4.75% at the next meeting later this month.

9 September 2021
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