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Economy in Brief

Inflation Coming Under Control in Latin America
by Carol Stone March 4, 2004

"Low inflation in Latin America" seems almost an oxymoron. Nonetheless, of three major economies in the region, inflation is low and, in one instance, almost non-existent. Chile, whose CPI was reported today for February, has in fact seen no inflation over the past 12 months, following a progressive slowing since the early 1990s.

Argentina is presently experiencing quite modest CPI inflation, just 2.3% over the 12 months to February (the latest figures were published yesterday, March 3). However, a major, widespread surge in prices occurred in 2002, coincident with the decoupling of the peso from the US dollar. Inflation that year was 41.0%.

Inflation is still moderately high in Brazil, with the 12-month rate at 7.7% in January. This compares favorably, however, with triple- and even quadruple-digit rates as recently as 1994.

We wondered if these various inflation patterns were related to overall growth. As noted in the table, Chile, whose CPI is the lowest and the steadiest of these three, also has the steadiest GDP growth, and indeed, the highest 10-year average growth rate, 4.4%. Argentina, with the most variable inflation over the last 10 years, has the lowest 10-year growth rate, a mere 0.6% annualized. Brazil, where inflation is not "low", but which has made fairly consistent progress bringing it down in recent years, is in the middle growth-wise, with a 10-year average of 2.4%. However, the most recent three years have seen quite tepid growth performance. Thus, the relationship of growth and inflation is not clear, although in this limited sample, it appears that a steady evolution of inflation trends -- as in Chile -- might help foster stronger GDP growth.

Year/Year % Changes Feb 2004 Jan 2004 2003 2002 2001 Average: 1995-2000 Average: 1990-1995
Chile
CPI 0.0 0.8 1.1 2.8 2.6 4.8 12.1
GDP 3.0* 3.2 2.0 4.0 9.2
Brazil
CPI 7.7 9.3 12.5 7.7 6.2 630.0
GDP -0.1 1.9 1.3 2.4 3.0
Argentina
CPI 2.3 2.7 3.7 41.0 -1.5 -0.3 19.6
GDP 9.8* -3.4 -10.5 2.6 -5.0
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