The inflation that emerging economies will register on average this year, estimated by the International Monetary Fund (IMF) at 8.7%, will be the highest in 33 years, according to information contained in the database of the same organization.
In other words, the pressure that food and energy prices are exerting, due to Russia’s war with Ukraine, is fueling a rise in prices among emerging and developing economies to levels not seen since 1999 when, on average, they observed a fluctuation of 10.3% in inflation.
As the IMF’s Director of Monetary and Capital Markets Tobias Adrian described at a seminar at the IMF’s Spring Meetings, war-induced inflationary pressures threaten to linger longer than anticipated. War whose evolution and end are uncertain, which will hinder the response strategy by central banks, he said.
Within the World Economic Outlook (WEO, for its acronym in English), IMF experts detail that Latin American countries are also experiencing domestic pressure due to the indexation of prices in contracts as well as pressure due to greater internal demand.
According to IMF data, the advanced economies will also have a significant impact, since together they estimate that they will register an annual inflation of 5.7% in 2022, the highest variation in 33 years.
These pressures will demand much more aggressive responses from central banks that will have the objective of cooling down the economies and reducing the pressure of domestic demand on inflation, Adrián explained.
Latin America and its exhibition
In this context, IMF experts estimate that Latin American economies will reach an average inflation of 5.8% this year, which will be the second highest average inflation for the region since 2005, when the record was 6.3 percent.
As the deputy director of Economic Studies at the IMF, Petya Koeava, explained to El Economista, in low-income countries such as emerging countries, low-income families usually allocate up to 40% of their spending to buying food and paying bills. fuels.
So, the pressure exerted by increases in these goods on the consumption basket of those who have less is much more noticeable.
The official noted that even in advanced economies, the pressure exerted by energy prices is directly affecting people’s pockets. That is why the reaction of central banks is important.
According to IMF forecasts, inflation in the region will still remain above the central banks’ target in 2023, when they anticipate that as a whole they will register an average increase of 4.3 percent.
Mexico, one of the lowest
When reviewing the detail of the IMF’s expectations for the expected inflation by Latin American countries, it is observed that those who will register the highest variations are Venezuela, of 500% per year; Argentina, with 51.7% and Paraguay with 9.4 percent.
The two largest economies in the region and therefore systemic, which are Brazil and Mexico, will reach average inflation variations of 8.2 and 6.8%, respectively.
By focusing on Mexico, the IMF anticipates that next year inflation will be at 3.9% and at the end of 2022 it will be at 5.9%, which would mark a second consecutive year above the Bank of Mexico’s target.
If the forecast is correct, the country will have the second highest rate of inflation in 21 years, only surpassed by that of 2021, which was 7.36% per year.
According to Tobias Adrian, from the IMF, the Bank of Mexico’s early response to inflationary pressures has been favorable.