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Chapter V Domestic prices
Chapter VV
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Domestic prices
Inflation in the region’s economies remained at historically low levels in 2020, reflecting a sharp contraction in aggregate demand and increasing the space for sustaining expansionary monetary policies Inflationary dynamics began to change in May 2020, with average regional inflation tending to increase Factors such as the sharp contraction in domestic aggregate demand, downward trends in international inflation, falling energy prices, supply problems, increased exchange-rate volatility and measures to deal with the pandemic contributed to the very different dynamics in the various components of inflation during 2020 Bibliography
Year-on-year inflation rates fell in most Latin American and Caribbean economies (21) during the first nine months of 2020 relative to the levels observed in the same period of 2019 (see table V.1). In six countries of the region (Bahamas, Barbados, Costa Rica, Dominica, Nicaragua and Saint Lucia), inflation rates declined by at least two percentage points. Conversely, inflation rose in 12 economies, with increases of 1 percentage point or more in the Dominican Republic, Guatemala, Mexico and Uruguay.
Table V.1 Latin America and the Caribbean: 12-month variation in the consumer price index (CPI), December 2018–September 2020a b (Percentages)
Latin America and the Caribbean (excluding countries with chronic inflation) South America (excluding countries with chronic inflation)
Bolivia (Plurinational State of) Brazil Chile Colombia Ecuador Paraguay Peru Uruguay
Central America and Mexico (excluding countries with chronic inflation)
Costa Rica Cuba Dominican Republic El Salvador Guatemala Honduras Mexico Nicaragua Panama
The Caribbean
Antigua and Barbuda Bahamas Barbados Belize Dominica Grenada Guyana Jamaica Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Trinidad and Tobago
December 2018
3.2 2.9
1.5 3.7 2.6 3.1 0.3 3.2 2.2 8.0
3.8
2.0 2.4 1.2 0.4 2.3 4.2 4.8 3.3 0.2
2.0
1.7 2.0 0.6 -0.1 4.0 1.4 1.6 2.4 -0.8 1.6 1.4 1.0
December 2019
3.1 3.3
1.5 4.3 3.0 3.8 -0.1 2.8 1.9 8.8
2.7
1.5 -1.3 3.7 0.0 3.4 4.1 2.8 6.5 -0.1
3.4
1.5 1.3 7.2 0.2 0.1 0.1 2.1 6.2 -0.8 -0.7 0.5 0.4
September 2019
2.5 2.5
2.3 2.9 2.2 3.8 -0.1 2.6 1.9 7.8
2.6
2.5 4.7 2.0 -0.7 1.8 4.4 3.0 5.7 -0.6
2.2
0.8 1.8 6.7 -0.1 1.2 0.4 2.3 3.4 -0.6 -0.3 0.5 1.1
September 2020
2.7 2.3 0.5 3.1 3.1 2.0 -0.9 1.6 1.8 9.9 3.5 0.3 -0.3c 5.0 -0.3d 5.0 3.4 4.0 2.8 -2.4e 1.8 1.2f -0.3d 1.9g 0.1d -1.0f -0.2f 0.5h 4.2 -1.1f -2.7f -0.5f 0.5i
Argentina Haiti Suriname Venezuela (Bolivarian Republic of)
47.1 16.5 5.4 52.9 20.8 4.2 52.4 19.7 4.0
35.2 25.1 26.2e 130 060.2 9 585.5 30 113.8 1 813.1 Source:Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a Regional and subregional averages weighted by population size. b The regional and subregional averages do not include data for economies with chronic inflation: Argentina, the Bolivarian Republic of Venezuela, Haiti and Suriname. c Data to May 2020. d Data to August 2020. e Data to April 2020. f Data to March 2020. g Data to July 2020. h Data to June 2020. i Data to February 2020.
Despite this, average regional inflation, weighted by population size, was higher in September 2020 (2.7%) than in September 2019 (2.5%). It should be noted that these are the lowest values for average regional September inflation in a decade.
At the subregional level, the evolution of year-on-year inflation was reflected in a decrease of 0.2 percentage points in the economies of South America, from 2.5% in September 2019 to 2.3% in September 2020. In the same period, year-on-year inflation rose from 2.6% to 3.5% in Central America and Mexico and fell from 2.2% to 1.8% in the non-Spanish-speaking Caribbean economies.
Regarding the countries not included in the regional and subregional averages (Argentina, the Bolivarian Republic of Venezuela, Haiti and Suriname), attention should be drawn to the decline in inflation in Argentina, where it fell from 52.4% in September 2019 to 35.2% in September 2020, and in the Bolivarian Republic of Venezuela, although year-on-year inflation there was still over 1,800% in September, despite falling back in the first nine months of 2020. In Haiti and Suriname, the inflation rate increased between 2019 and 2020.
Analysis of the evolution of inflation during 2020 brings to light a clear difference in the situation before and after May. Figure V.1 shows the monthly inflation trajectory at the regional and subregional levels, revealing that regional inflation fell between December 2019 and May 2020, particularly following the appearance of COVID-19 in March. In May 2020, the year-on-year inflation rate in the region was 2.0%, the lowest in a decade, with inflation falling in 25 countries. Since then, the region’s year-on-year inflation rate has increased by 0.7 percentage points, reflecting the rise in this variable in 11 countries, most notably Brazil, the Dominican Republic, Guatemala, Honduras, Mexico and Paraguay, where inflation rose by more than a percentage point between May and September 2020.
Figure V.1 Latin America and the Caribbean: 12-month variation in the consumer price index (CPI), weighted average, January 2016–September 2020 (Percentages)
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5
4
3
2
1
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2016 2017 2018 2019 2020 Latin America and the Caribbean (excluding Argentina, Haiti and Venezuela (Bol. Rep. of)) South America (excluding Argentina and Venezuela (Bol. Rep. of)) Central America and Mexico (excluding Haiti) The Caribbean Source:Economic Commission for Latin America and the Caribbean (CEPAL), on the basis of official figures.
Factors such as the sharp contraction in domestic aggregate demand, downward trends in international inflation, falling energy prices, supply problems, increased exchange-rate volatility and measures to deal with the pandemic contributed to the very different dynamics in the various components of inflation during 2020
Firstly, as pointed out in the Economic Survey of Latin America and the Caribbean, 2020 (ECLAC, 2020), core inflation has been trending downward since May 2016, when it reached 4.8%. This trend was accentuated in 2020, especially in the second quarter, when the effects of the crisis caused by the pandemic began to be felt throughout the region. Indeed, between February and July 2020, average core inflation in the region fell from 2.9% to 1.7%, the lowest in a decade. The dynamics of the regional indicator were driven by the performance of the economies of South America, where it fell by 1.6 percentage points between December 2019 and September 2020 (from 2.7% to 1.1%).1 This performance contrasts with an increase in the economies of Central America and Mexico, where core inflation rose from 2.3% to 3.4% in the same period.
Since this indicator isolates the direct impact of the components whose prices exhibit the greatest volatility (food and energy) in the consumer price index (CPI) basket, the downward trend reflects the sharp contraction of aggregate demand in the region, while at the same time showing how much more scope monetary authorities have to adopt expansionary monetary policies.
The average regional inflation rate for food and non-alcoholic beverages increased by 2.8 percentage points year on year, from 4.1% in December 2019 to 6.9% in September 2020 (see figure V.2). This upward trend in food inflation has been observed since April 2018, when the food inflation rate was 0.9%, the lowest since 2005. The 6.9% observed in September 2020 is the highest rate since October 2016. Brazil, Chile, Guatemala and Mexico are the countries where food inflation increased most between December 2019 and September 2020, with increases of more than 2 percentage points. Food price inflation also increased in the Bolivarian Republic of Venezuela and Haiti during the period.
Climate factors, problems in input supply chains and increasing exchange-rate volatility are some of the factors explaining the upward trend in food prices. These factors have generally become more pronounced as a result of the social isolation measures adopted to deal with the COVID-19 pandemic.
With regard to the regional dynamics of services prices, there was a sharp drop in the inflation rate between December 2019 and September 2020, when it fell by 1.5 percentage points from 2.9% to 1.4%. Services inflation fell in all subregions, with a particularly sharp drop of 2.0 percentage points in the South American economies. Figure V.2 shows that this indicator fell to its lowest levels for five years in May but has since trended upward. This dynamic reflects the impact of social distancing measures on the service sector and that of lower fuel prices on the transport sector following a sharp fall in international crude oil prices.
Something else to note is that, as a group, economies with fixed exchange rates have generally had negative inflation rates in 2020, and these have tended to fall further in recent months. The dollarized economies had average inflation of 0% in December 2019 and 0.7% in September 2020. A similar situation is observed in the economies of the region with fixed exchange rates, where inflation fell from 0.3% to 0.7% in the period. This contrasts with the upturn in inflation in the economies of the region with adjustable exchange rates, especially from May 2020 onward.
Figure V.2 Latin America and the Caribbean: 12-month variation in the consumer price index (CPI) by categories of inflation, weighted average, January 2016–September 2020 (Percentages)
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6
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2
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2016 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2017 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2018 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2019 Nov Dec Jan Feb Mar Apr May
Jun 2020 Jul Aug Sep
Latin America and the Caribbean (excluding Argentina, Haiti and Venezuela (Bol. Rep. of)) Food inflation Goods inflation Services inflation Core inflation
Source:Economic Commission for Latin America and the Caribbean (CEPAL), on the basis of official figures.
Bibliography
ECLAC (Economic Commission for Latin America and the Caribbean) (2020), Economic Survey of Latin America and the Caribbean, 2020 (LC/PUB.2020/x-P), Santiago.
