Will Latin America’s Inflation Cool In 2023?

Inflation appears to be dissipating in the majority of the region’s countries, as Argentina and Venezuela struggle to escape from the list of the five countries in the world with the sharpest price hikes

Photographer: Erica Canepa/Bloomberg
January 24, 2023 | 08:31 PM

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Bloomberg Línea — While 2022 will be remembered as a year in which many Latin American countries, many of whose inhabitants did not remember the word inflation, suffered a generalized hike in prices, projections for 2023 show a bittersweet path: everything seems to indicate that the inflationary peaks reached last year will not recur, except in Venezuela and Argentina, but the problem of rising prices will continue to be a stumbling block to growth.

In a recent report, the World Bank pointed out that, in order to control inflation in a lasting manner, the countries of the region may require a “considerable additional increase in interest rates”.

In another section on Latin America and the Caribbean, the multilateral lending agency’s document states: “Headline inflation appears to have peaked by mid-year [2022] in most countries, but remains well above central bank targets”.

Nevertheless, governments have shown an awareness of the need to bring inflation down and have tightened monetary policies, even with the knowledge that this was bound to stymie economic activity. “This slowdown reflects both the efforts of monetary authorities to control inflation and the side effects of an inauspicious global outlook,” the World Bank stated.

Inflation forecasts for Latin American countries:

  • In Argentina, the latest market expectations report (REM) conducted by the central bank showed that the median of the country’s consulting firms foresees an inflation of 98.4% in 2023. Argentina closed 2022 with 94.8% inflation and ranked as the fourth country with the highest inflation in the world (taking those for which there is reliable data), behind Zimbabwe, Venezuela and Lebanon.
  • In Bolivia, the median of economists consulted by the central bank forecasts 2023 inflation to reach 3.6% year-on-year in December (the last survey was published last December). The South American country closed 2022 with one of the lowest inflation rates in the world.
  • In Brazil, Latin America’s leading economy, the latest survey conducted by the central bank shows that market analysts expect inflation to be 5.48% in 2023. In April 2022, the South American giant reached a year-on-year inflation of 12.13% and, since then, a sustained decrease was achieved, to close the year at 5.79%.
  • In Chile, the median of consultants’ responses in January is that 2023 will end with a year-on-year inflation of 5%. Chile is also veering off the path of rising prices, which peaked at 14.1% (year-on-year) in August, but closed the year at 12.8%. Together with Haiti, it is the only country in the American continent whose GDP growth projections are negative in 2023, given that its central bank decided to reduce activity in order to lower inflation.
  • In Colombia, according to the Financial Opinion Survey delivered on Monday, by the Foundation for Higher Education and Development (Fedesarrollo), inflation expectations for December 2023 stood at 8.89%. Colombia closed 2022 with inflation at 13.12%, only surpassed in the Americas by Venezuela, Cuba, Suriname, Haiti and Cuba.
  • Regarding Costa Rica, economist of the National Stock Exchange, Juan Pablo Arias, pointed out at the end of December that for 2023 analysts see inflation at 6% and that rates will remain high. This would place it below the 7.88% of 2022.
  • The latest survey of macroeconomic expectations of the central bank of the Dominican Republic (published in November) gave inflation projections for December 2023 of 5.8% year-on-year, having closed 2022 with inflation of 7.83%.
  • According to an International Monetary Fund report published in November 2022, Ecuador will close 2023 with the lowest inflation in the region (1.4%). Ecuador was one of the few countries in the region that did not suffer major price shocks in 2022 and closed the year with a 3.74% increase.
  • The IMF’s November study also forecasts a sharp inflation slowdown for El Salvador, which, if the projections are met, would close 2023 with a consumer price index increase of around 2%. El Salvador’s inflation in 2022 was 7.34%.
  • In Guatemala, the central bank has expressed confidence that inflation will return to the 4% target (with a margin of error of +1 or -1%) in 2023. This forecast is in line with what the IMF projected in November, inflation of 4.8% y-o-y to December 2023. In 2022, Guatemala’s inflation closed the year at 9.24%.
  • According to the latest market expectations survey of the central bank of Honduras, the median analysts’ predictions see inflation closing 2023 at 8.28% year on year. Honduras ended 2022 with a year-on-year inflation rate of 9.8%.
  • In Mexico, Latin America’s second-largest economy, inflation in 2023 is forecast to be 5.1%, if the projections of the latest Survey of Expectations of Private Sector Economic Specialists, conducted by the central bank, are met. Mexico had peak inflation in August and September of 8.7% year-on-year, but closed 2022 at 7.82% year on year.
  • “We would be projecting for 2023 an inflation that could be between 5 and 6%; the world also expects a moderation of prices,” said the president of the central bank of Nicaragua, Ovidio Reyes, in an interview with newspaper La Prensa earlier this year. Nicaragua closed 2022 with 11.38% year-on-year inflation.
  • Panama ended 2022 with the lowest inflation in Latin America, and one of the lowest in the world: 1.4%. What can happen in 2023? The study published in November by the IMF expects a small rise, to close the year at 3%.
  • In Paraguay, inflation is seen at 5% this year, according to the Variable Expectations Survey (EVE) prepared by the central bank. In 2022, Paraguay’s consumer price index rose 8.1% year-on-year.
  • The latest survey conducted by the Peru’s central bank shows that economic analysts forecast 4.1% year-on-year inflation in the country for December 2023, while the financial system and non-financial companies expect 4.5%. Peru closed 2022 with year-on-year inflation of 8.46%.
  • In Uruguay, inflation is forecast to be 7.12% year-on-year at end-2023, if the projections of analysts surveyed by the central bank are met. Uruguay closed 2022 with 8.29% annual inflation.
  • And regarding Venezuela, in November 2022 the IMF forecast inflation of 150% at the end of 2023. Some local analysts expect it to be just below 100%, however. The country ended 2022 with an inflation rate of 305.7%, according to figures from the Venezuelan Financial Observatory, which publishes an alternative measurement to the official government figures.