Throughout the past year, Latin America inflation has been a problem. To combat rising prices, many central banks in the region have raised benchmark policy interest rates.

Brazil, Peru, Mexico, and Uruguay have all raised their benchmark policy rates this year. Hikes may also be coming to Chile and Colombia, with the former reporting a 0.8% increase in prices per month this year and the latter foreseeing a 4.1% rise in the inflation rate. 

Domestic prices have risen for multiple reasons, but import inflation has been particularly problematic for three main reason: Global shipping conditions have been tight, prices for food and energy have risen sharply in 2021, and LATAM currencies have been weak. Combined, this has led to a substantial amount ofinflation that has hit fragile consumers during the COVID crisis.

Our View

The region is likely to see inflationary pressures throughout the rest of this year. That said, Latin America inflation should be transitory, as pressures on global supply chains and the shipping industry ease when consumers start shifting away from manufactured goods and back into services. Timelines are uncertain, as this transition is closely tied to reopening timelines in different countries, and these timelines could be disrupted by slow vaccination rates and the emergence of new variants.

Business Implications

Global supply chains should start to normalize during the rest of 2021 and likely into 2022, but this timeline could face disruption from the evolution of COVID-19. Companies should revisit their demand forecasts, continue to pay close attention to their inventory management, and strengthen communication along the supply chain with providers, distributors, retailers, and end customers. Companies that have already digitalized their supply chain will be better positioned to react to unexpected events. Businesses should anticipate a lean year of demand overall and be prepared to withstand any upcoming shocks in the region until things normalize.

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