The strong inflationary rebound observed in recent years is a global phenomenon. In most countries, the inflation peak of at least two decades or even four, as in the case of the United States, has been exceeded by a wide margin. In this context, Latin America gives us a lesson in responsibility in terms of monetary policy (with some exceptions due to marked idiosyncratic reasons). On the one hand, this is the region that first started the monetary adjustment cycle, and it is also the one that materialized the greatest movement, proof of the commitment to keep inflation under control, despite the risk of a very which is likely to be an economic indicator. slow down.
Therefore, among the largest economies in the region, inflation in Chile, Colombia and Brazil increased by 12.1% and 14.1%. However, with Brazil in the lead, and with a sensitive reaction, interest rates were raised to levels between 11.25% and 13.75% between these three economies, and a total increase between 725 base points in Mexico and 1,175 points base in Brazil, the ones that increase the rates the least and the most in this cycle. Today, this position has gained a quick advantage, especially in Brazil, which has taken the most decisive position. There, inflation has fallen significantly over the past year and is at 5.2% (693 basis points below its peak). In addition, a significant reduction occurred in Chile and somewhat less marked in Peru, Mexico and Colombia (more than 300 basis points from their respective peaks), but in all of them leading to a significant moderation.
This remarkable effort on the part of monetary policy is without great sacrifice. The region, with a large increase in interest rates, also contributed to a marked moderation in activity, which in some countries such as Chile caused economic decline. This penalty will be felt in the expected growth for Latin America, for 2023, which will be 1.9%, and in 2024, 1.5%, below the 2.9% and 3% expected for the global economy, respectively. But this sacrifice in terms of activity, in a region where there are many limitations, has gained a reward as a result of this responsibility of monetary policy and that has been fulfilled by the appetite of investors. In another time, which is now far away and where very important lessons have been learned, the change in world policy observed last year could cause a strong penalty for investment flows in the region. Likewise, inflation is expected to approach, for most of the region’s economies, towards its goals between 2024 and 2025, a convergence that in the past could also be slow and painful for the most vulnerable populations.
Alejandro Reyes, from BBVA Research.