Governments globally are coming under immense pressure to cushion the blow of surging food and fuel prices. In Latin America, the response risks igniting a tinderbox.
From Mexico to Brazil, persistently high inflation is widening the gap between rich and poor in what is already the world¡¯s most unequal region. It¡¯s stoking political upheaval that could be a foretaste of what lies ahead as policymakers the world over struggle to meet demands to increase social spending.
Across Latin America, a burgeoning middle class is seeing its prospects eroded. For society¡¯s poorest, the latest wave of consumer price increases will be a full percentage point higher than for the richest, estimates by the Economic Commission for Latin America and the Caribbean show. One-third of the entire region is poised to meet the criteria for poverty, defined as those living on $1.90 a day.
Evidence that the impact is weighing most heavily on the poorest is already bubbling over into social unrest.
In Panama, protestors blocking highways and ports prompted a freeze in the prices of 72 essential goods in July. Strikes in Peru the same month forced a pledge of more state help for the poor. Ecuador¡¯s government is in talks with indigenous organizations after rioting broke out over the soaring cost of living. A common refrain is that only the rich can now afford even basic foodstuffs.
Interest rate rises of 250 basis points or more this year in at least seven of the region¡¯s nations have yet to make much of a difference, leaving governments to deploy tax cuts and social programs at the expense of fragile public finances.
Yet throwing money at the problem could backfire, weighing on currencies and further driving up food prices, according to Adriana Dupita, Latin America economist with Bloomberg Economics.
¡°Latin American leaders are struggling to soothe the population¡¯s anguish about prices with the tools they have at hand,¡± she said.
Voters in Peru, Chile and Colombia have all opted for radical change in the past 18 months, as the pandemic focused anger over longstanding inequalities. Rampant inflation as supply chain disruptions collide with Russia¡¯s invasion of Ukraine is compounding those grievances.
¡°This round of inflation is even more harmful for poverty levels and income distribution,¡± said Ernesto Revilla, head economist for the region at Citigroup. ¡°It¡¯s clear there¡¯s higher probabilities of unrest now.¡±
Surging prices are dominating the election in Brazil, where Luiz Inacio Lula da Silva, the leftist former president, is attempting to unseat the incumbent, Jair Bolsonaro.
Bolsonaro, whose first term was overshadowed by his handling of the pandemic, which left more than...
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