Moody’s, the asset quality rating agency, has warned that the high inflation rate some countries are facing in Latam will affect economic recovery in the region. Brazil, Chile and Mexico would be the countries most affected by this phenomenon, and their recovery will depend on other factors to mitigate the effects of inflation.
Moody’s States Latam spending recovery could be hampered by inflation
Inflation is becoming a problem in several countries in Latin America and around the world, undermining many countries’ recovery forecasts from the Covid-19 pandemic. A recent note released by asset quality rating agency Moody’s points out that inflation will be a decisive factor in the region’s future economic recovery.
The note mentions Brazil, Chile and Mexico as three of the countries whose growth in private spending will be significantly dampened by the high rates of inflation they are experiencing. However, other factors will also be relevant to this resumption of spending.
The note indicates that the level of wages in Mexico, consumer confidence in Brazil and the rate at which jobs are created in Chile will also influence this growth in the near future.
Mexico is one of the countries that has recorded high inflation rates this year. According to figures from Banxico, the country’s central bank, the May inflation rate was slightly below its highest level in 21 years. Moody’s explains that the large number of people outside the formal employment system will compound this problem because the company expects few raises for workers under these conditions.
Brazil, on the other hand, has an advantage over Mexico, as the labor market exhibits high levels of formality and companies are more inclined to raise wages to keep them in line with high inflation rates. Chile is now facing difficulties due to the political challenges of drafting a new constitution, a task that was proposed by the country’s current president, Gabriel Boric.
This political uncertainty could negatively affect the country’s recovery. Moreover, Boric said that if the proposed constitution is rejected by Chileans, another constitutional process will have to be organized.
In April, the Bank of Spain published a report expressing concern about the development of political instabilities resulting from the loss of purchasing power of the most vulnerable households and the influence this could have on growth forecasts for Latam .
What do you think of the influence that high inflation rates will have on the growth of private spending in Latam? Tell us in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. This is not a direct offer or the solicitation of an offer to buy or sell, or a recommendation or endorsement of any product, service or company. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.