Analysis | Why Inflation Is Scaring Latin America If Not the Fed

The U.S. Federal Reserve, like many other central banks, sees inflation from the reopening of economies disrupted by the pandemic to be “transitory,” and it’s not expected to raise interest rates until at least next year. Latin America’s policy makers, by contrast, are rushing to reverse ultra-low borrowing costs. Since late June, central banks in Mexico, Peru, Chile, Uruguay and even Paraguay followed the early move by Brazil and increased rates, while many expect Colombia to follow soon. Latin America was perhaps hit harder than any other region by Covid-19 and is experiencing a quick economic rebound that puts pressure on prices. Other reasons for the difference, though, may have to do with the continent’s high levels of inequality, informality and political instability — together with a history of inflationary bouts deeply etched into the collective economic memory.

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