Latin American Inflation Falls 

BY CHRONICLE STAFF

Latin American inflation is falling thanks to the economic slowdown hitting the region. However, Venezuela may actually experience even higher inflation, economists say.

All in all, Latin America should see an average inflation rate of 7.3 percent this year, the International Monetary Fund predicts. Last year posted an average of 8.8 percent inflation, the highest level since 2003, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). Eight countries will see double-digit rates, while 11 countries will post single-digit rates under the regional average, according to a Latin Business Chronicle analysis.

Venezuela last year ended with 30.9 percent inflation, the Venezuelan central bank announced last week. That's nearly twice the 18.7 percent rate registered in 2007 and the highest rate since 2003, when inflation ended at 31.1 percent. The strong increase lat year came despite GDP growth slowing down from 8.4 percent in 2007 to 4.9 percent in 2008. 

WORLD'S SECOND-HIGHEST

This year, Venezuela will likely reach a further 35.1 percent rate, according to the Inter-American Dialogue's Latin America Advisor, which looked at five different forecasts. That will again be Latin America's highest rate and the second-highest worldwide after Zimbabwe, according to a Latin Business Chronicle analysis of estimates from the International Monetary Fund. Other inflation champions should see lower rates this year: Myanmar (30.0 percent), Azerbaijan (20.0 percent) and Vietnam (15.0 percent).

Despite this year's slowdown, experts believe inflation will rise because of factors such as continued high government expenditures and a likely devaluation of the local currency, the Bolivar.

Ecuador, which is following the same expansionary policies as Venezuela, will likely end up with only 0.7 percent inflation this year, according to the forecast from Latin America Advisor. That will likely be Latin America’s lowest rate, according to a Latin Business Chronicle analysis. Experts credit the fact that Ecuador only uses the U.S. dollar as its legal tender, which doesn't allow it to print more money to finance its budget.

Venezuela and Argentina, which will also see high inflation this year, albeit lower than last year, will suffer from demand pressures just as their terms of trade weaken dramatically, points out Claudio Loser, a Senior Fellow at the Inter-American Dialogue and former head of the Western Hemisphere Department at the International Monetary Fund. "This can be avoided in an orderly fashion only if governments introduce much more balanced macroeconomic policies, in line with other countries in the region," he argues.