By Joel Julien
Inflation has risen across the Latin America and the Caribbean region, exceeding central banks’ targets in most cases, the World Bank has stated in its latest Global Economic Prospects report.
“The increase is attributed to firming demand associated with economic reopening, rising food and energy prices, weather-related electricity production disruptions, and, in some countries, currency depreciation and large increases in money supply,” it stated.
According to Central Bank of T&T’s latest Monetary Policy Announcement published on December 31, following a lag of several months, external price pressures are currently having a direct and broad-based bearing on domestic inflation.
“Headline inflation measured 3.9 per cent (year-on-year) in October 2021 compared with 2.4 per cent a month earlier. Food inflation surged to 7.6 per cent (from 5.8 per cent in September) and is likely to rise further given the situation in global grain markets. Core inflation (which excludes food items) almost doubled to 2.9 percent from the previous month. Stronger price pressures were also observed for building materials, with the Index of Building Material Prices rising by 12.6 per cent during the third quarter of 2021 when compared to the same quarter a year earlier,” it stated.
The World Bank stated that growth in LAC rebounded to an estimated 6.7 per cent growth in 2021, driven by favourable external conditions and pandemic-related developments.
“Region-wide new COVID-19 cases dropped sharply in the second half of the year, before surging in late December, even as the vaccination rollout progressed. Strong demand in key export destinations (the United States and China), high commodity prices, and continued high remittances to Central American and Caribbean countries were also supportive of growth in 2021,” it stated.
The World Bank said after rebounding to an estimated 5.5 per cent in 2021, global growth is expected to decelerate markedly to 4.1 per cent in 2022, reflecting continued COVID-19 flare-ups, diminished fiscal support, and lingering supply bottlenecks.
Meanwhile regional growth is projected to soften, to 2.6 per cent in 2022 and 2.7 per cent in 2023, as fiscal and monetary policy is tightened, improvements in labour market conditions continue to be sluggish, and external conditions become less supportive, the World Bank stated.
“The outlook is subject to several downside risks. These include spikes in COVID-19 cases, financing and debt-related stress, and disruptions from extreme weather events and natural disasters,” it stated.
“The durability of economic recovery in LAC, as elsewhere, depends on the control of the pandemic. COVID-19 outbreaks, including those triggered by new variants of the virus, remains a downside risk even in countries with high vaccination rates. A sudden deterioration of investor sentiment, especially in an environment of elevated inflation and high government debt, could trigger debt servicing challenges and bouts of capital outflows. Economic disruptions related to extreme weather, partly related to climate change, and other natural disasters pose a significant risk not only for the regional growth outlook but also for the lives and livelihoods of people living in the region,” the World Bank stated.
The World Bank reported that as Emerging Market and Developing Economies (EMDEs) have limited policy space to provide additional support if needed, these downside risks heighten the possibility of a hard landing.