Saturday, November 08, 2008

Inflation in Latin America

Two days ago I mentioned the rise of inflation in Chile, and now we have news that Mexico's inflation has reached a 7 year high (though 5.8% is no crisis). Brazil is at a three year high. In the Chile post, I brought up the point that especially given a drop in oil prices and slowing consumer demand, inflation was not likely to continue rising. On the other hand, we don't want it to drop too much.

In fact, the buzzword for Europe and Japan is deflation, and it is causing great concern because it means there is little money in the economy and consumers just aren't buying.

We therefore have a situation where, given the global outlook, Latin America's mild inflation might be enviable, at least for now. However, we need to emphasize mild, because Venezuela's inflation rate is about 25%, and 35% in Caracas, and that will cause problems.


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