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Inflation in Latin America: Venezuela Worst

By Chronicle staff | Latin Business Chronicle

03.10.05 | Venezuela is expected to post Latin America's highest inflation this and next year. Peru will have the lowest rate. In general, inflation is falling in the region, but Argentina will see a strong increase, the IMF forecasts.

Spurred by rising public expenditure and rising wages, Argentina is expected to reach an inflation rate of 9.5 percent this year. That's more than twice the 4.4 percent rate of last year. Next year Argentina is expected to post even higher inflation - 10.4 percent, the International Monetary Fund forecasts in its latest World Economic Outlook, released at the end of September.

"With growing wage pressures and some monetary accommodation on account of unsterilized foreign exchange interventions, inflation has accelerated," the fund says. "While the policy interest rates were raised, further tightening is required, not least in view of the procyclical fiscal easing targeted in the 2005 budget."

All in all, seven Latin American countries are expected to post increased inflation this year, while 10 are set to see falling rates and two will likely post the same rate, the IMF forecasts. The average inflation for Latin America is set to reach 6.3 percent, a slight improvement over last year's level of 6.5 percent and the lowest rate since 2001.

"After some uptick in the second half of 2004, inflation in the region has generally stabilized, but remains volatile with continued heightened commodity price variability," the IMF says in its report.

Latin America's inflation this year will be higher than the rates of the United States, the Euro area and emerging Asia, but lower than Africa's, according to the IMF.

Venezuela will see a decline - from 21.7 percent last year to 16.6 percent this year. However, that rate will still be Latin America's highest (also Haiti will post the same rate). This year marks the 22nd consecutive year Venezuela posts double-digit inflation.

Next year, Venezuela's forecasted rate of 18.0 percent inflation will be the highest once again and be one of only two double-digit rates in Latin America.

Ecuador will post an inflation rate of 2.0 percent, its lowest in more than 25 years. Since it dollarized in 2000, the country has seen strong declines in inflation each year.

Apart from Venezuela and Haiti, the highest inflation rates will be posted by Costa Rica (12.6 percent - its highest since 1997), Argentina (9.5 percent), Nicaragua (9.0 percent) and Honduras (8.1 percent)

The lowest rate will be posted by Peru (1.8 percent), its lowest rate since 2002 and an improvement over last year's rate of 3.7 percent.

Ecuador will post an inflation rate of 2.0 percent, its lowest in more than 25 years. Since it dollarized in 2000, the country has seen strong declines in inflation each year. Next year Ecuador should again post 2.0 percent inflation, the IMF predicts.

Other low rates will likely take place in Panama, Chile and the Dominican Republic, the IMF forecasts.

In fact, the Dominican Republic's expected rate of 3.7 percent this year marks a dramatic improvement over last year's rate of 51.5 percent, the highest in Latin America.

Mexico, Latin America's largest economy, is expected to see a small decline in inflation - from 4.7 percent last year to 4.3 percent this year. Brazil, the second-largest economy in the region, is set to post a small increase - from 6.6 percent last year to 6.8 percent this year.

Next year, Latin America will likely reach an average inflation rate of 5.4 percent, according to IMF's forecast. If realized, that will be the region's lowest rate in more than 25 years.

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