Bogotá — Mexico, Brazil, Chile, and Colombia will release inflation data this week, providing insights into the ongoing battle against rising costs of living in Latin America.
The region continues to grapple with price increases, primarily through higher interest rates. Key markets like Mexico, Brazil, Chile, and Colombia will unveil their Consumer Price Index results this week, which will serve as indicators of the ongoing trajectory of living costs.
Projections from Bloomberg Economics regarding the data to be released this week suggest that, barring a few exceptions, inflation may have continued to slow down in the region, despite external pressures from the El Niño weather phenomenon or the effects of the war in Ukraine.
Inflation in Brazil
The cost of living in the South America’s largest economy decelerated to 3.16% in June, and “another low monthly general CPI figure should support the central bank’s rate strategy, which began an easing cycle in its last meeting.”
Bloomberg Economics noted that “the decline in prices of food, electricity, cooking gas, and clothing, as well as the residual effect of the tax reduction applied to new cars in June, should help contain general inflation.”
In any case, a rebound in the main indicators of underlying inflation is expected. The forecast suggests that annual inflation in July could reach 3.97%. This would mean that year-on-year inflation will continue to rise in the third quarter, they said.
They also suggest that one of the key indicators to consider is the price of services in relation to the evolution of monetary policy. “Service sector inflation increased in June, and the central bank highlighted its resilience as an upside risk to inflation,” they explained.
Inflation in Mexico
For Mexico, economists Felipe Hernández and Adriana Dupita, who authored the report, estimate that inflation will fall to 4.77% in July from the 5.06% reported in June, which was the lowest level since March 2021 at the time.
They link the possibility of this outcome with the global inflation slowdown, decreasing supply chain pressure, and the effects of the conflict in Ukraine. Additionally, the accumulated appreciation of the Mexican peso in 2023 and base effects are considered in this forecast.
Bloomberg Economics’ forecast indicates that average inflation in the third quarter will be around 5%, lower than the Bank of Mexico’s estimate. They see it likely that non-core inflation will decrease from June’s 0.36%, thanks to the energy sector, particularly lower propane prices.
They also expect a deceleration in underlying inflation from June’s 6.89%. “Our forecast is consistent with Banxico’s estimate of an average underlying inflation of 6.2% in the third quarter,” they added.
Inflation in Chile
Analysts at Bloomberg Economics projected in the report that the inflation rate in Chile may have dropped from 7.6% annually in June to 6.4% in July. They project that non-core inflation should drive most of the slowdown, due to food and energy.
While food prices are forecasted to fall from June’s 11.8% due to base effects, “supply disruptions caused by El Niño constitute a risk.”
In the energy sector, they explain that inflation should continue its downward trend and thus slow down from 2.11%. This dynamic is influenced particularly by lower gasoline, diesel, and propane prices.
“Base effects are also a factor and point to further decline,” added economists Felipe Hernández and Adriana Dupita.
Inflation in Colombia
Colombia was one of the markets where prices took longer to peak in Latin America, but now inflation is beginning to recede.
Bloomberg Economics projected that the year-on-year inflation rate likely fell to 11.65% in July, down from 12.13% in the immediately preceding month.
According to the report, “disruptions from the conflict in Ukraine and disruptions in the global supply chain continue to moderate and explain most of the decline.” These factors are combined with others such as reduced domestic demand, the accumulated appreciation of the Colombian peso, and base effects.
On the flip side, rising gasoline prices and strong indexation to previous inflation limit the decline, while risks from El Niño raise concerns for prospects, they said.
Forecasts also suggest that the inflation rate for food will fall from June’s 14.29%. This would be due to the drop in prices of agricultural products and processed foods.
The report concludes that, excluding food prices and government-regulated tariffs, it is likely that the inflation rate will fall from June’s 10.51%.
