Inflation threatens a Central America trying to recover from crisis

Inflation threatens to become a major problem in the short term for a Central America that is already feeling the impact of the high international prices of oil and raw materials, and that is trying to recover from the economic crisis caused by the covid pandemic. -19.

The economist of the Central American Business Intelligence firm Paulo De León said in a regional virtual press conference that "inflation is the number one enemy of the region because the impact on purchasing power is very strong" which, he said, can deepen social problems such as migration, poverty and insecurity.

The expert stated that "Central American inflation is 85% or 90% imported" as a result of the international prices of raw materials and oil and that in this context the central banks of Central America have little interference in inflation.

"The central banks of our countries have their hands a bit tied. Raising interest rates will do nothing to the international prices of wheat and corn"De Leon said.

The economist said that there are currently "a worrying situation in terms of raw material prices" that have been growing steadily since the middle of last year and that are reaching historical levels.

Data presented by De León indicates that in the last year the international prices of raw materials have grown by 59.71% in general.

In the food area, prices have risen 35.78% in the last year, in energy 173.13%, in beverages 54.27%, in industrial materials 28.11% and in agricultural supplies 25%, detailed the economist .

According to de León, Central America has been experiencing an upward trend in inflation since last year, which, he estimates, "won’t stop anytime soon".

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“Inflation is reaching all countries and especially consumers. Inflation occurs for three clear reasons: The massive and historical injection of money in the United States, Europe and China, the logistics crisis and the European energy crisis. Inflation will not stop in the short term, at an economic cost, which is less growth in the economy of each country,” said De León.

Added to this are other risk factors for the region’s economy, such as the deterioration in government fiscal accounts and indebtedness, deepened by the covid-19 crisis.

In this sense, De León pointed out that Honduras (9.5%), Costa Rica (7.5%) and Panama (6.1%) are the countries with the highest fiscal deficit in the region, and that in terms of debt, El Salvador is the country with the highest figure with 87% of GDP, followed by Costa Rica (69%), Panama (64%), Honduras (55%), Nicaragua (49%) and Guatemala (31%).

International tension due to the conflict between Russia and Ukraine is also a factor that is expected to have an impact on inflation in Central America.

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