Latin American food prices push inflation: IDB report

May 4, 2011 at 5:25 PM
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WASHINGTON, May 4 (UPI) -- Soaring food prices are hurting the poor and underprivileged and undermining Latin American governments' efforts to control inflation, the Inter-American Development Bank said.

The bank's findings followed reports that Latin American governments, faced with large inflows of foreign investment and resulting appreciation of their currencies, were also up against inflationary trends that could destabilize their economies.

Foreign investors' cash has flowed into Latin America because of lucrative interest earnings and the rising regional currencies have hit exports. In the meantime, high liquidity levels have pushed domestic consumer prices, affecting the legions of the poor and underprivileged.

Latin America is frequently criticized by rights campaigners for having some of the longest running and least effective poverty reduction programs that are used by politicians as vote-winners each time there is an election.

IDB said more needed to be done soon to protect the region's poor from the combined effect of high prices, inflation and underemployment.

Net food importers with a greater share of spending concentrated on tradable foodstuffs and with little chance of currency appreciation will be the hardest hit by higher international food prices, IDB said.

Most exposed are the poor citizens of Latin American countries that haven't seen their currencies rise, as in Brazil and Chile. The bank cited problems in 13 countries directly affected by recent increases in international food prices.

Those countries' problems were compounded by the rising oil prices, the bank said.

However, it said that higher oil prices would only significantly affect inflation in a small number of countries in the region through 2011.

Argentina, Brazil and Chile have all launched vigorous oil exploration programs. Venezuela and Ecuador are major oil exporters.

IDB said aid programs need to be more focused.

"There is a need to increase and improve targeting of aid, perhaps through reformed conditional cash transfer schemes, to these groups to compensate the effect of the food price surge," the bank said in a policy note n how "the food price shock" will affect inflation in Latin America and the Caribbean.

It said that flexible exchange rates in other countries of the region had the potential to offset the impact on domestic prices but that raised other concerns. A significant nominal appreciation may affect the competitiveness of other tradable sectors. The challenge for net commodity exporters is to harness the current windfall and ensure that the economy remains competitive, the bank said.

Argentina, Brazil and Chile are major commodity exporters that also face renewed inflationary pressures.

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