Since this year, under the influence of multiple factors such as successive aggressive interest rate hikes by the Federal Reserve, the Ukraine crisis and international commodity prices remaining high, the local currency exchange rates of major Latin American economies have fallen, import costs have increased and imported inflation has become increasingly serious. To this end, Brazil, Argentina, Chile, Mexico and other countries have recently taken follow-up measures to raise interest rates in response.
Observers point out that the major Latin American central banks' interest rate hike initiatives have had limited effect on easing inflation. This year and in the coming years, Latin America will face challenges such as increased inflationary pressures and declining investment, or a return to low growth levels.
Argentina's National Institute of Statistics and Census data show that Argentina's inflation rate reached 7.4% in July, the highest since April 2002. Since January this year, Argentina's cumulative inflation rate has reached 46.2%.
Data from Mexico's National Institute of Statistics and Geography showed that Mexico's annualised inflation rate reached 8.15% in July, the highest since 2000. Recent inflation figures released by Latin American economies such as Chile, Colombia, Brazil and Peru are also hardly optimistic.
The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) released a report at the end of August stating that the average inflation rate in the LAC region reached 8.4% in June this year, almost double the average inflation rate for the region from 2005 to 2019. There are concerns that Latin America may be experiencing the worst inflation since the "lost decade" of the 1980s.
The Fed's aggressive interest rate hikes are not without basis for concern for Latin American economies. During the late 1970s and early 1980s, financial globalisation accelerated, international capital markets were flooded with "petrodollars" and Latin American countries' external debt ballooned. As the US began a cycle of interest rate hikes to combat inflation, interest rates rose, causing Latin American countries to fall into a debt crisis that they could not afford. The 1980s became known as Latin America's "lost decade".
In order to cope with the devaluation of the local currency, reduce capital outflows and reduce debt risks, Brazil, Argentina, Chile, Mexico and other countries have recently followed or even preceded the Federal Reserve to raise interest rates, of which the largest number of interest rate adjustments, the largest range is Brazil. Since March last year, Brazil's central bank has raised interest rates 12 times in a row, gradually increasing the benchmark interest rate to 13.75%.
On 11 August, Argentina's central bank raised its benchmark interest rate by 9.5 percentage points to 69.5%, marking a tougher stance on inflation by the Argentine government. On the same day, Mexico's central bank raised its benchmark interest rate by 0.75 percentage points to 8.5 per cent.
Economists point out that the current round of inflation is mainly imported inflation and that raising interest rates will not get to the root of the problem. Interest rate increases also increase the cost of investment and inhibit economic dynamism.
Carlos Aquino, director of the Center for Asian Studies at the National University of San Marcos in Peru, said that the Fed's continued interest rate hikes have made Peru's economic situation "even worse". The financial policy of the United States has traditionally been based only on its own economic interests, "transferring" conflicts through financial hegemony and making other countries pay a heavy price.
At the end of August, ECLAC raised its regional economic growth forecast to 2.7%, up from 2.1% and 1.8% forecast in January and April this year, but well below the region's 6.5% economic growth rate last year. ECLAC's interim executive secretary, Mario Simoli, said the region needed to better coordinate macroeconomic policies to support economic growth, increase investment, reduce poverty and inequality, and control inflation.
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