Lora, Eduardo & Powell, Andrew.
In the wake of the international price shock, Latin American economies are between a rock and a hard place.
In January of this year, international food prices surpassed the mid-2008 peak with similar consequences: popular revolts in undemocratic countries, and many speeches but few concrete actions in developed countries. In Latin America it was the usual dilemma: more inflation or more revaluation.
As net food exporters, Argentina, Brazil, Guatemala, Paraguay and Uruguay are benefiting from the high international prices but all other countries, including Mexico and the small economies of Central America and the Caribbean, are all losers. They are net importers of the basket of major food commodities in world trade; including rice, sugar, corn, soybeans and wheat.
Both food exporting and importing countries with flexible exchange rates reacted to the 2008 price shock by appreciating their currencies, making imports cheaper in the domestic currency and cushioning the inflationary effect of higher external prices. At the time, capital was also flooding in, which may have also contributed to the currency appreciations.
This time around, countries in the region may well react in the same way. If they do, the countries with flexible exchange rates may be saved again from inflation. According to an IDB policy brief, the inflationary impact would be negligible in Brazil, Colombia, Mexico and Uruguay, and reach only about three percentage points in 2011 in Peru.
Πηγή: Vox-LACEA