Latin America And The Caribbean: Securing Low Inflation

• After a strong rebound from the pandemic and continued resilience in early 2023, growth in Latin America and the Caribbean is projected to moderate from 4.1% in 2022 to 2.3% this year and remain around this rate in 2024.
• Furthermore, inflation is expected to converge gradually toward central banks’ targets, according to the latest IMF Regional Economic Outlook report for the Western Hemisphere.
• “Latin America has successfully weathered recent global shocks and showed a strong performance in 2022 and early 2023, although growth is softening. The slowdown reflects tighter policies to contain inflation and weakening external environment, including slower growth in trading partners, tighter external financing conditions, and lower commodity prices”, said Rodrigo Valdes, director of the IMF’s Western Hemisphere department.  
• After reaching 7.8% in 2022, headline inflation in the region (excluding Argentina and Venezuela) is expected to decline to 5% in 2023 and to 3.6% next year, driven by weakening external and domestic demand, easing global supply constraints, and the lagged effects of currency appreciation in some countries.  
• The risks to the outlook appear more balanced compared to April 2023, although they remain tilted to the downside. External risks include lower growth in main trading partners, commodity price volatility, new inflationary shocks, renewed turbulence in global financial markets, and an intensification of geopolitical tensions.
• At the regional level, downside risks relate to a potential for reemergence of inflationary pressures and increased social tensions. Climate-related shocks also pose important challenges over the short and medium term, especially for Central America, Panama, the Dominican Republic subregion, and the Caribbean, including through their impact on outward migration.
• As inflation comes down and growth slows, policymakers will need to calibrate policies carefully. The swift response of the region’s central banks played a key role in controlling inflation and most are well placed to move forward with gradually easing their tight monetary policy stances, although they should remain attentive to risks. 
• “Prudent easing will continue to require a careful balance between placing inflation on a durable downward path while minimizing the risk of a prolonged period of low growth. Key to achieving the right balance is the pace of monetary easing and a proper assessment of the impact of past tightening on inflation, as monetary policy operates with lags. Central bank communication remains instrumental to the success of the disinflation effort”, added Mr. Valdes.

(Source: International Monetary Fund)