Inflation soars in Latin America with political uncertainty, climate crisis and consumer incentives | Economy

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In the last year, in addition to rising unemployment and poverty, Latin Americans have been paying more and more for food and some services. Inflation came gradually and, in some cases, suddenly, as a new tax that did not need to pass legislative approval. The recovery of the world economy and disruptions in supply chains are partly responsible, but there are also endogenous factors in some countries that have contributed: political uncertainty, weather conditions and an extraordinary increase in consumption.

Thousands of Peruvians take care of every drop of cooking oil now that the price has gone up by more than 100%. In Brazil, gas, gasoline and electricity became more expensive, as well as food. In Mexico, the increase in the price of the fuel most used in homes, LP gas, led the federal government to establish maximum prices and even create a state-owned distributor. In Colombia, how much is paid now for a we shock, a popular candy, became a trend on the networks. It’s a bitter pill, but experts see that further price acceleration is over and stabilization is to come.

“What we’ve seen in recent months is a confluence of factors,” says William Jackson, chief emerging markets economist at Capital Economics in London. At least in Mexico, Brazil, Colombia, Chile and Peru, inflation has exceeded the targets of their central banks, which are between 2% and 4%. In Brazil, the Focus survey, which gathers the projections of more than 100 financial institutions for economic indicators, reveals the expectation of reaching 7.27% of official inflation this year, two percentage points above the target ceiling (5.25% ). The market has been raising its bullish projection for 21 weeks.

For Jackson, the scenario points to a high ceiling on the mainland. “It is very likely that the biggest price increase has already taken place. Inflation rates should start to fall in the rest of the year in most Latin American countries, although some risks still persist, such as weather events and weak currencies,” adds the expert.

global recovery

The recovery of advanced economies led to an increase in oil prices, so that its derivatives, such as gasoline, also increased in prices. The cost of fuel as an energy source has a domino effect, impacting many other consumer goods and services, including transport. Authorities in Ecuador, Brazil, the Dominican Republic and Chile, for example, have included transportation as one of the items that saw the biggest increases this summer.

In Mexico, the Ministry of Energy issued an “emergency directive” last month, forcing the industry regulator to impose maximum rates on the price of LP gas, which is used by 80% of Mexican households. In response to this, the union of gas supply and distribution companies held a brief strike. Meanwhile, the Mexican government created, in a month, its own distributor, Gas Bienestar, which goes into operation this Friday.

At the same time, intermittent feedlots seen around the world, especially in Asia, disrupted supply chains for many products exported to the Latin American region. Across the world, Jackson explains, confinement and the daily work indoors have boosted demand for consumer goods and appliances, adding to the mix an increase in demand for things whose supply was already declining. This makes them more expensive. “As Latin American countries reopened their economies, we also saw an increase in local tourism, so hotels and airlines raised their prices,” says Jackson.

Climate

Brazil and Mexico suffered droughts this year, affecting agriculture and livestock and, therefore, food prices. Brazil is largely dependent on hydroelectric power and, due to low levels of dams, it had to import electricity generation. In July alone, electricity rose 8% in the country, which impacts the price of many goods. In the last 12 months, the price of meat has risen, in some parts of the country, up to 38%. “With climate change, the most extreme events will become more and more common, according to the latest IPCC report,” says Jackson, “although conditions vary, in general, these jumps in the cost of food will become more common. “.

political uncertainty

Peru is perhaps the country that has seen the price of its food and beverages rise faster in recent months. The arrival of Pedro Castillo, a radical leftist candidate, for the presidency, generated strong distrust and an outflow of capital, which is why the Peruvian sun devalued against the dollar. This has aggravated inflation in Peru, as many raw materials and products that need to be imported are much more expensive. The situation is such that the Peruvian Association of Consumers and Users (ASPEC) asked the public not to buy products that have gone up in price to “punish speculators”, who, taking advantage of the instability, increase their prices without having a fundamental reason.

“The political situation creates uncertainty, the dollar has risen, this creates effects on the stock market, some producers say that inputs are rising,” said Crisologo Cáceres, president of ASPEC, in a statement. “In Peru, in the food sector there are oligopolies that combine to increase chicken, oxygen, paper, gas canisters or medicines”.

In Colombia, a proposed tax reform that would have increased the tax base by including the middle class, directly impacting the pockets of millions of citizens, sparked violent protests that lasted for months. The demonstrations caused disruptions in the distribution and production of some goods, which also contributed to inflation in that country, explains Jackson.

‘Boosted’ consumption

While in Peru the public is being asked to consume strategically, in Chile economic policy has led to an increase in consumption so high that it has boosted inflation. “With the exception of Mexico, Latin American economies are now in the process of reopening, and in Chile this is happening very strongly,” says Jackson. According to data from the Central University, the three withdrawals of 10% of pension funds that the government allowed during the quarantine so that Chileans could fight unemployment and lack of income mobilized 50 billion dollars. “What we are seeing is that, in addition to being a country where there was greater support in government transfers, the money that was withdrawn from pensions generated a kind of turbo consumption.”

In a report, the professor and director of the chair of commercial engineering at the Universidad Central Juan Rojas stated: “Injecting this amount into consumption generates undeniable changes in the Chilean economy. The sustained process of greater circulation of available money also implies an increase in the level of consumer prices, which makes the value of money fall and causes inflation, which this year would approach 4%“.

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