Inflation spike has further to run

The recent spike in global commodity prices is a much bigger problem for policymakers in Latin America than it is for policymakers in the developed world. This is for two reasons. First, food and energy account for a much larger share of household spending and thus the CPI basket. Hence when commodity prices – particularly food – rise, the pass through to headline inflation tends to be more dramatic than elsewhere in the West. The various lags mean that even if global commodity prices now start to stabilise, inflation will continue to rise in much of the region for the next six months or so. Most central banks are likely to miss their inflation targets this year.