Recent annual inflation rates in some countries in Latin America: Venezuela 15%,Argentina 8.5%,Brazil 4%,Chile 6% .Still the average rate of inflation for the whole bunch of countries, was 5,4% in the year 2006,quite below the average in the nineties,263% in the first half of that decade, and 17% in the second half of that decade. The trend in the years 2000,concerning inflation rate in Latin America, has been downward . Therefore it is not the case that Latin American economies are moving backward ,but it is the effect of cost pressures arising from foods and energy prices increases .Whether it is transitory or permanent is a different matter. However, it is probably the new price setting for the mid term period of time. It is going to take a while to develop new capacities to cope with world wide increasing demand for foods, very much so, when the expectations is for a steady increase in such demand. Advanced economies do not face the same kind of pressures because foods do not represent that much expenditure weight on consumption basket . The same apply for energy consumption ,and new sources of supply.-
The important issue is that most of Latin America countries in the nineties, implemented reforms in their Central Banks to give them more autonomy and independency. It follows that Latin America economies have the proper tool to cope with this prices challenge. But, a different issue is how to use this tool, and the willingness to admit that there difficult trade off to deal with along the way.
To which extent is it worthy to sacrifice economy growth with restrictive monetary policy ,whether there will be inflationary impact arising from cost pressures anyway?. Cost pressures arises from the real side of the economy, which means that it is more time demanding to cope with its impactand solution. Productivity increases are a mid term target, and it requires additional reforms which might take more time than available . Labour market flexibility, is difficult to improve in the short term .
There is one option which can not be left out. Central Banks need to be even more autonomous than they are. The evidence indicates that the more its autonomy, the lower the volatility of inflation and so the volatility of output. Thus, the most serious problem, lies on the political side of the equation. Politicians like to threat Central Bank autonomy ,because it reduce their own influence to manipulates economic growth with more government expenditures pressures.-.