The inflation observed in March is just a sample of the first impact that the global rise in food and fuel prices will have on all the world’s economies, warned economists at Bank of America Securities (BofA Securities).
“We believe that we have not seen the worst of inflation and therefore we will face more aggressive central banks and greater social pressures, especially in emerging economies in Latin America.”
In a new analysis, they revised upwards their inflation forecasts for Brazil, Chile and Mexico, with the forecasts for the latter economy being the most moderate at barely a quarter of a point.
Now, they anticipate that the economy led by Jair Bolsonaro will present a variation of 8% after reaching a maximum of 11.5% in April. The new year-end forecast is higher than the previous 6.5%.
For Chile, they expect a fluctuation of 7.5% by the end of the year, greater than the 6.5% at the beginning.
For Mexico, they expect an annual variation of 6.5% at the end of the year compared to the 6.2% estimated for the previous month. According to experts at BofA Securities, “the combination of low fiscal stimulus and a relatively credible central bank have tempered inflation surprises.”
After warning that no central bank wants to return to the 1970s, when regional inflation generated high costs, they stressed that the monetary authorities are clear that the struggle to reduce price escalation also discouraged growth in the following decade.
Minimum wage
Within the analysis, Unsurprising inflation surprises, detail that governments have tried to contain the impact of inflation through unconventional policies such as fuel subsidies and tax exemptions for specific foods.
“But they have also sought increases in the minimum wage to provide support to the population, which can generate additional pressure on inflation, since general wage increases fuel pressure on the economy,” they said.
In contrast, food price shocks generate limited effects, they noted.
“We believe that March inflation only shows the first-order impact of high food and fuel inflation.”