Latin America as a whole is a net beneficiary from higher energy prices, but the terms of trade boost is limited (or in Mexico’s case more than offset) by a lack of domestic refining capacity. The surge in refined product prices will also add to inflation pressures, particularly given that most governments have limited fiscal space to cushion the hit to households. Further rate hikes are on the cards in Colombia, while central banks in Chile and Peru could turn to tightening if the energy price spike is prolonged.
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