By: Staff Writer
August 26, 2022
The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) said that inflation is compounding the problem is getting financing for the Latin American and Caribbean (LAC).
ECLAC in their “Economic Survey of Latin America and the Caribbean,” said: “The countries of Latin America and the Caribbean face a complex economic and social environment in 2022. Weak economic growth is accompanied by strong inflationary pressures, slow job creation, falling investment and growing social demands. This situation has created major challenges in terms of macroeconomic policy, with a need to reconcile policies that promote economic recovery with policies to rein in inflation and make public finances sustainable.
“The complex domestic situation in the region is compounded by an international landscape in which the war between the Russian Federation and Ukraine has heightened geopolitical tensions, dampened economic growth, reduced food availability and driven up energy prices, adding to existing inflationary pressure caused by supply shocks from the coronavirus disease (COVID-19) pandemic.”
Inflation spiked when people began to return to work from the COVID-19 pandemic at the end of 2021. Global inflation forecast to rise to 7.5 percent by the end of 2022, driven by food, fuel, energy, and supply chain disruption. The latter, some believe, is at the root cause of the inflation.
“Rising inflation in the region and worldwide has been driven by supply and demand shocks, whose relative significance has changed over time. Higher inflation in 2021 was driven by supply disruptions and higher commodity prices, especially for energy and food. Persistent global supply chain problems meant that aggregate world supply, far from being able to adjust to the additional uptick in demand as the post-crisis recovery began, was depleted, further fuelling global inflation, with knock-on effects in the region,” the report noted.
The report also said: “With increasing uncertainty about global growth, inflation trends and developed economies’ monetary policy responses, international financial markets have become more volatile, creating more demanding conditions to obtain financing, which is detrimental to the countries of the region. In addition, the dollar has tended to appreciate against almost all currencies, which is also unfavourable for Latin American and Caribbean countries.”
The report added: “World average inflation hit 7.2 percent in May 2022, a rate last recorded in mid-2008 at the height of the global economic and financial crisis. In emerging economies, average inflation reached 7.1 percent and in advanced economies it was 7.5 percent. In the group of advanced economies, inflation in the United States hit a 40-year high of 9.1 percent in June 2022, while in the eurozone it reached 8.6 percent in the same month, the highest level since the launch of the euro.”
A global recession could be projected if inflationary pressures continue to go on unabated. However, the recession may not come with collapsing prices and it very well may be the exact opposite, with even higher inflation and higher unemployment and a lack of investment.
Inflationary pressures have led central banks to withdraw monetary stimulus measures and raise monetary policy rates more quickly and in larger increments than anticipated at the start of the year.
The report also said: “Keeping pace with international inflationary pressure, inflation in the economies of Latin America and the Caribbean has also risen, reaching an average of 8.4 percent in June 2022, more than double the average for 2005–2019. In the subregions, the economies of South America posted the highest average inflation rate in June 2022 at 8.7 percent, followed by Central America and Mexico at 7.7 percent and the English-speaking Caribbean at 7.4 percent.”