Latin America: Inflation Turns A Corner

Slowing inflation would pave the way for better-than-expected economic growth in the region.

The latest readings in Latin America indicate that inflation may have already started to pivot lower in some of the region’s leading economies, making way for looser monetary conditions and real GDP growth in 2023.

After three consecutive months of negative inflation figures, Brazil saw an uptick of 0.59% in its last month-on-month Consumer Price Inflation (CPI) reading. Still, Latin America’s largest economy remains on track to post negative inflation growth for the second half of 2022.

While still on the positive side of the curve, Mexico, Chile and Ecuador have also seen price rises peak recently. Not only have the three countries posted declining price inflation growth in their last two readings, but they have also beaten market expectations by a significant margin.

Colombia and Uruguay have yet to see peak inflation, and their latest figures appear reasonably stable. Argentina remains an outlier—with inflation reaching 88% in October and expected to top 100% in coming months, according to Bloomberg data.

The trend will likely affect global macroeconomic conditions in 2023. According to a recent report from Oxford Economics, Latin America should “lead the way” for inflation slowdown in emerging markets. Oxford argues that the region may be better positioned than Europe and other emerging market countries in the current challenging environment due to its lower reliance on commodity imports. “Global commodity price inflation is falling, and by mid-2023, we expect double-digit declines in annual import price inflation,” wrote Gabriel Sterne, Oxford’s head of Global Emerging Markets Research. “Since Latin American countries generally don’t subsidize food as much as their EM peers, they’ll be first to feel the effects.”

Another important driver of the positive outlook is that many Latin American countries are further ahead in their post-pandemic monetary tightening cycles, having started to raise interest rates almost a year before the US Federal Reserve and the European Central Bank.

Slowing inflation would pave the way for better-than-expected economic growth in the region. While still below the global average, the International Monetary Fund has already raised GDP growth expectations in the region for 2022 from 3% to 3.5%.