The Fitch rating agency points out that the greatest challenges for growth in Latin America nowadays.The escalation in the price of food and energy worldwide began with the emergence of the Omicron variant of the SARS-CoV-2 virus last fall. This phenomenon was fueled by Russia’s invasion of Ukraine and will have an impact on inflation in Latin America and also in exporters who benefited from rising prices,
According to Fitch Ratings (rating agency) thi will impact the policy of the United States Federal Reserve in the immediate future and the effects of the second round of the global price crisis. A complex scenario for the central banks of the region.
In this sense, the report points out, if central banks “raise interest rates more aggressively to anchor inflation expectations or keep them higher for longer, they run the risk of undermining the economic recovery.” At the same time acknowledges that Latin American currency banks are the best performers in the context of recent global risk aversion due to the Ukraine-Russia conflict. The report warns that “central banks face additional challenges if this changes, especially in the case of fuel importers in the region”.
There have already been symptoms of social discontent due to the increase in energy and food prices. Such is the case of the recent strikes and protests in Paraguay, which have resulted in extra pressure for governments to take extraordinary measures. “To contain the increase in fuel costs, governments have cut taxes (Mexico, Brazil), have expanded subsidies through price diameter mechanisms (Colombia, Chile), or have forced service companies governments to reduce prices or raise them below import parity (Uruguay)”.
Fitch also lists that to contain the increase in food prices in Colombia, taxes are being cut. In Uruguay a price freeze is negotiated. Dominican Republic suppliers are subsidized and Argentinian prices are increased (export taxes)
Latin America’s growth obstacles are due to the erosion of real income due to inflation and the increase in borrowing costs due to monetary restrictions. Report states that “This is the case even for commodity exporters that are benefiting from recent price rises, as any windfall gains that their commodity sectors receive cannot quickly spread to households and other sectors,” .