Almost there - navigating the last mile of disinflation in Latin America

Speech (virtual) by Mr Alexandre Tombini, BIS Chief Representative for the Americas at the BIS, at the Market News International (MNI), 28 October 2024.

The Covid-19 pandemic required unprecedented policy actions from central bankers. After a faster-than-expected economic recovery, inflation surged to decades-high levels. Central banks raised policy rates and inflation fell substantially. Strong monetary policy frameworks helped Latin American central banks in keeping long-term inflation expectations anchored and avoiding financial crises.

However, the final stage of reducing inflation to target levels, "the last mile," remains challenging. While inflation is much lower, it is still not yet at target. Some countries even experienced a rebound. The final stage of disinflation will be different from the first phase. Base effects from the waning of the transitory factors that pushed up inflation play a much smaller role now. High and persistent growth in services prices will be a challenge, especially as wages continue to rise. Expansionary fiscal policies are counteracting restrictive monetary policies, complicating the path to achieving inflation targets. In addition, inflation is increasingly driven by domestic factors, reflecting greater economic and labour market disparities among countries.

Central banks will have to proceed cautiously in the period ahead.