Asset quality rating agency Moody’s has warned that the high rate of inflation facing some countries in the Latam region will affect the region’s economic recovery. Brazil, Chile, and Mexico are among the countries more affected by the phenomenon, and their recovery is said to depend on other factors that could dampen the effects of inflation.
Moody’s Says Latam Consumption Recovery May Be Hampered by Inflation
Inflation has been a problem in Latin America and several countries around the world, watering down recovery forecasts for many countries after the Covid-19 pandemic The problem has been a problem for many countries in Latin America and elsewhere in the world. Notes recently issued by asset quality rating agency Moody’s,emphasize that inflation will be a decisive factor in the future of economic recovery in the region.
The note mentions Brazil, Chile, and Mexico, where high inflation will severely dampen private spending growth. However, other factors are also relevant with regard to this spending recovery.
He states that wage levels in Mexico, consumer confidence in Brazil, and the speed of job creation in Chile will also affect this growth in the near future.
Individual Factors
Mexico was one of the countries that recorded high inflation this year. According to figures from the country’s central bank, Banxico, inflation in Maywas only slightly below a 21-year high. Moody’s explains that the problem will be exacerbated by the large number of people outside the formal employment system, since workers in this situation can expect little in the way of salary increases.
Brazil, on the other hand, compares favorably with Mexico because of the higher level of formality in the labor market and the tendency of companies to raise wages in line with higher inflation. Chile faces difficulties due to the political challenge of restructuring the new constitution proposed by the current president, Gabriel Boric.
This political uncertainty could have a negative impact on the country’s recovery. Furthermore, Boric has stated that if the proposed constitution is rejected by the Chileans, another constitutional process will have to be organized.
In April, the Bank of Spain issued a report expressing concern about the development of political instability as a result of the loss of purchasing power by the most vulnerable households and the impact this might have on Latam growth projections.
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