Food price shock still has a little further to run

Central bankers – and some in the markets – appear increasingly hopeful that the recent spike in food price inflation, which has driven headline inflation above its target in pretty much every country in the region, will now start to ease. We think this may be somewhat premature and that it probably won’t peak until Q4 of this year, before quickly unwinding next year. However, rising core pressures will cushion the slowdown in headline inflation and keep policymakers on their toes. So even though the current monetary tightening cycle should soon draw to a close, we still expect further interest rate hikes in Chile, Peru, Brazil and Colombia over the coming months.