New Latin American Agreement Seeks to Combat Inflation

The Mexican government is pushing for a trade agreement with Latin American countries to exchange products without imposing tariffs. With the agreement, the government seeks to jointly combat inflation and price increases for essential products such as food.

President López Obrador said he has already discussed the plan with the President of Brazil, Lula de Silva; the President of Colombia, Gustavo Petro; the President of Cuba, Miguel Díaz-Canel and the President of Argentina, Alberto Fernández. López Obrador also stressed his willingness to include Chile, Bolivia and Honduras in the initiative. 

"The main objective is to eliminate tariffs, barriers that prevent obtaining food at a good price for the countries’ domestic markets," he said. The presidents are expected to meet remotely on April 5, 2023, followed by a face-to-face summit.

In 2022, Latin America was hit by inflation due to the crisis generated by the war between Ukraine and Russia. Experts pointed out that both Russia and Ukraine are key agricultural producers whose output came to a grinding halt. As a result, prices have soared worldwide, explained Luis Perez Lezama, Director of Economic Research, the Veracruz-based ThinkLab SAVER. 

Experts said peak inflation levels have already been reached, so any trends involving skyrocketing prices should stabilize. However, the pace of price stabilization will vary from country to country, reported El Economista.

In Mexico, 2023 started with a year-over-year inflation rate of 7.91%, the highest since level January 2001. According to experts, food prices have risen the most. CONEVAL pointed out that in rural areas, the basic food basket costs MX$1,644 (US$91.25), while in urban areas it costs MX$2,144 (US$119).

Faced with this problem, the Banxico governing board indicated that it would continue changing Mexico’s monetary policy to ensure relative prices are adjusted. Banxico’s main objective is to lead inflation to its 3% goal while preserving anchoring inflation expectations. Mexico’s internal growth relies on adopting measures to promote a “favorable” environment that can attract investments. Banxico highlighted that the adequate allocation of resources will allow the Mexican economy to increase its productivity.

Jonathan Heath, Deputy Governor, Banxico, recently indicated that the interest rate is unlikely to surpass 12% in 2023, arguing that he expects inflation to end below 5% by the end of the year. Banxico’s latest data forecasts that interest rates will be between 11.25% and 11.75% by the end of 2023, as reported by MBN.