Dollarization and fuel price fixing offset the impact of world inflation in Ecuador, while in Argentina it will reach 90%.
A woman shops in a supermarket in the north of Quito, in July 2022.
Inflation in Ecuador will close at 3.5% annually in 2022, according to Citi Research, which does not foresee a pronounced rise in prices in the country.
In 2023, Citi Research forecasts a 1.5% rise in the Consumer Price Index (CPI) for Ecuador.
It would be the lowest inflation among the 12 Latin American economies analyzed by the firm. Thus, inflation in Ecuador will moderate, taking into account that the July rate was around 4%.
Other countries that will close 2022 with low inflation are Panama, with 3.8%; and Peru, with 6.7%. In contrast, in Argentina annual inflation will reach 90%.
Lower inflation brings relief to the pockets of consumers, who recover purchasing power , explains Ernesto Revilla, chief economist for Citi Research for Latin America.
Rates go up
The evolution of inflation in the region in 2022 and 2023 will respond to several factors.
One of the most important is that the United States will maintain a restrictive monetary policy , with increases in interest rates to discourage credit and level prices, says Revilla.
The control of inflation in the United States tends to stabilize the prices of imported products in Latin America. That translates into cheaper inputs and goods for businesses and households.
At the moment, interest rates in the United States range between 2.25% and 2.50%, but Citi Research forecasts that they could reach 4.25% by the end of 2022.
The president of the Federal Reserve of the United States (FED) , Jerome Powell, affirms that there will be new rate hikes to contain inflation , which exceeds levels of 40 years ago.
Another sharp rise in interest rates may come at the next Fed meeting in September, according to Powell.
Capital flight
Although not everything is positive. A restrictive monetary policy in the United States can encourage capital flight from countries like Ecuador.
For investors, the rise in interest rates in the United States is an opportunity to protect their capital in safe assets, such as US Treasury bonds.
The rise also makes it difficult for governments and companies in Latin America to access international credit, which becomes more expensive.
“The upward cycle of interest rates is bad news for Latin America and emerging markets, because it tightens financial conditions and makes credit less available,” says Revilla.
Additionally, rising interest rates in the United States strengthen the dollar against other Latin American currencies, making Ecuador less competitive.
Dollar and fuel
Inflation in Latin America will also recede as global supply chain problems are resolved and pressures on commodity prices ease.
This is what the International Monetary Fund (IMF) expects .
Ocean freight prices have already started to decline, due to lower demand in the big economies, which are growing little.
Lower growth in the United States or China reduces demand, which has pushed down the prices of raw materials.
The prices of commodities, such as oil or corn, soared at the beginning of the year due to the Russian invasion of Ukraine, which aggravated the interruption of the supply chain.
In the case of Ecuador, inflation has also remained low because it is a dollarized economy and because fuel prices are frozen, with the exception of Super gasoline, says the IMF.
