Washington, 1 February 2022 (TDI): In a report published by the International Monetary Fund (IMF) Latin America is set to face high amounts of inflation as recovery slows down amidst the new Omicron variant, returning to their pre-pandemic GDP levels.
Economic Past Events to understand the Problematic
After a major economic collapse in 2020, things were looking up as growth shot up to 6.8% in 2021. However, it is estimated to slow down to just 2.4% in 2022, this is brought on by supply chain disruptions, slower growth in the United States and China. Not to mention the arrival of the Omicron variant.
The increase in food and energy prices last year caused inflation to skyrocket in many Latin-American countries. In countries like Mexico and Brazil prices increased by 8.3%. core prices increased by 5.9% in Mexico and 7.2% in Brazil.
Inflation has been made worse by exchange rate depreciation, rising import prices, and the sudden surge in consumer demand, additionally, wage factors have also had a major negative effect.
Measures implemented to stop the economic collapse
Central Banks within the region responded swiftly to counteract this. Policy rates rose between 1.25% and 7.25% in several Latin-American countries. These rates are expected to go up further in the coming months.
The changes in monetary policy have helped curbed long-term inflation. Inflation remains relatively well-anchored, but the same could not be said for the short term.
🛒 Inflation in Latin America is surging. Policy rates have risen in response to the higher prices and to prevent further increases.
Find the details on the #IMFBlog here: https://t.co/PEKvYaqcJ8 #IMFAmericas pic.twitter.com/fpnE5o7KRj
— IMF (@IMFNews) January 31, 2022
As the pandemic continues there is a degree of uncertainty as widespread social unrest is expected within the region, given elections are just around the corner. According to the IMF, these countries must tackle three major problems all at once.
First, ensure the sustainability of public finances. Second, raise potential growth in a manner that addresses social inequities, and third, promote social cohesion.
The IMF further adds that countries within this region have great potential to reinvigorate their growth. However, they will require careful planning policies.
