Inflation bites Latin America
In Mexico City, tortilla prices are up by a third; beef-hungry Argentines pay 58% more
MEXICO CITY — No item is more essential to Mexican dinner tables than the corn tortilla. But the burst of inflation that is engulfing Latin America and the rest of the world means that people like Alicia Garcia, a cleaner at a restaurant in Mexico City, have had to cut back.
Months ago, Garcia, 67, would buy a stack of tortillas weighing several pounds to take home to her family every day. Now, her salary doesn’t go so far, and she’s limiting herself to just 2 pounds.
“Everything has gone up here,” she said outside a tortilla shop. “How am I, earning minimum wage, supposed to afford it?”
Just as inflation isn’t limited to tortillas, whose prices in the capital have soared by one-third in the past year, Mexico is hardly alone. Latin America’s sharpest price spike in a generation has left many widely consumed local products suddenly hard to attain. Ordinary people are reckoning with day-to-day life that has become a more painful struggle, without any relief in sight.
In Chile, annual inflation was 10.5% in April, the first time in 28 years the index has hit double digits. Colombia’s rate reached 9.2%, its highest level in more than two decades. In Argentina, whose consumers have coped with double-digit inflation for years, price increases reach 58%, the most in three decades.
In beef-crazy Buenos Aires, some households have started seeking alternatives to that staple. “We never bought pork before; now, we buy it weekly and use it to make stew,” said Marcelo Gandulfo, a 56-year-old private security guard.
Last year, the average Argentine consumed less than 110 pounds of beef for the first time since annual data were first collected in 1958, according to the Argentine Beef Promotion Institute. Over the past few months, prices have been “increasing a lot more than normal,” said Daniel Candia, a 36-year-old butcher.
Latin America is suffering from “sudden price spikes for necessities,” the World Bank’s President David Malpass said during an online conference last week. He noted that energy, food and fertilizer prices are rising at a pace unseen in many years.
Across the world, central banks are raising interest rates, a government’s primary tool to try to slow inflation. But jacking up rates carries the risk of weakening an economy so much as to cause a recession.
It has been decades since the region’s countries simultaneously suffered soaring inflation. A key difference now is that the globe’s economies are much more interconnected, said Alberto Ramos, head of Latin America macroeconomic research at Goldman Sachs.
“Interest rates will need to go up; otherwise, inflation will run wild and the problem will get even worse,” Ramos said.
So far, though, higher rates aren’t providing much hope that inflation will decline significantly in the near term. The International Monetary Fund last month projected that average inflation in the region, excluding Venezuela, will slow to 10% by year end. That’s not much below the 11.6% rate registered at end-2021 and still more than twice the 4.4% expected for advanced economies, according to the IMF’S World Economic Outlook.
“It will take at least a couple of years of relatively tight monetary policy to deal with this,” Ramos said.