Brazil’s central bank struck back with shock-and-awe rate hike. Mexico’s central bank faces tough spot after big hit to economy. Argentina’s inflation exceeds 42%.
Around the world, there has been massive fiscal and monetary stimulus, an unprecedented growth in government-guaranteed lending, an explosion in the broad money supply, coupled with low inventories, supply chain shocks, rising shipping costs, and surging demand for certain commodities and consumer goods in developed countries, particularly the US. Companies are able to raise prices and pass on higher costs without triggering a buyers strike as the inflationary mindset has kicked in.
Many emerging economies are also having to contend with the additional inflationary impact of weaker domestic currencies. They include Mexico, where consumer prices rose to 4.7% in March — their highest level since December 2018. Prices are now firmly above the Bank of Mexico’s target inflation rate of 3%, with a one percentage point tolerance threshold above and below that level. In March alone, consumer prices grew 0.8%:
The items that saw the biggest month-on-month price increases were domestic LP gas (5.2%), low-octane gasoline (6%), and staple foods such as eggs (8%).
Surging commodities prices are being passed on to retail products. The price of corn reached $5.68 per bushel in March, up 74% from a year ago. Since last June, the price of this essential grain, for both human and livestock consumption, has risen every month. With consequences: The price of corn tortilla, Mexico’s most important staple food, rose by almost 3% in March from February.
Last year Mexico’s economy suffered its biggest contraction (8.5%) since the worst year of the Great Depression, 1932. It also appears to have contracted in the first quarter of 2021. But prices continue to rise, leaving the Bank of Mexico little choice but to abandon its plan to cut interest rates this month.
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