Australia and the World Past and Present

Many countries in Latin America are experiencing high rates of inflation or even hyperinflation.

The COVID-19 pandemic has been a contributing factor. The demand for basic items remained strong but local production was hampered by lockdowns and travel restrictions leading to a surge in the cost for essential items.

The war in Ukraine has also had an effect. The war with Russia has led to the disruption of global supply chains and a shortage of some inputs needed for local manufacturing or agriculture.

In 2022 multinational bank BNP Paribus reported on the issue of inflation within Latin America.

Inflation was running at 117% in Venezuela.

In Argentina and Suriname it was between 50 and 70%.

Inflation was also high for many Caribbean nations.

Inflation was less than 5% in Bolivia at the time but the country was using subsidies to maintain price controls.

Brazil and Mexico have significant manufacturing industries and a rise in the price of inputs due to international supply chain issues pushed inflation up in these countries.

Much of the fertilizer used in Latin America comes from Russia. In fact, the Latin America region sources 80% of its fertilizer from external suppliers.

Some countries went through currency depreciation in 2021. While currency depreciation stimulates exports it also leads to more expensive imports. This is a big problem as many Latin American counties import a lot of their basic food products. This is the case for many Caribbean nations.

Some countries such as Argentina or Venezuela have printed large vloumes of currency in response to economic difficulties in the past but this has just led to even greater levels of inflation.

A history of recurrent fiscal deficits and high debt have weakened the ability of many countries to respond to economic pressures and shocks.

Many Latin American economies are heavily skewed towards the export of oil, minerals or agricultural products. This means that they are highly sensitive to fluctuations in global commodity prices. A sudden drop in commodity prices can lead to a sudden drop in export revenue. The downward spiral continues as foreign exchange reserves are depleted and currencies undergo devaluations.

The public sector in many Latin American countries are considered by many analysts to be realtively inefficient.

Financial markets are relatively underdeveloped. There are limited investment options for savings. As a result, when people choose to invest many look to tangible assets such as housing.

Corruption can be a problem.

Policies unfriendly to business can see the flight of capital to other countries or regions. An obvious case is the round of nationalisations made by Venezuela in recent times.

The recent experience of high inflation and hyperinflation has multiple causes. One crucial reform for the future will be a greater diversification of these economies so that they are less dependent upon primary exports.