New CEPR Study Looks at Recent Inflation In Latin America, in Context of Current Economic Slowdown

A new study released by the Center for Economic and Policy Research (CEPR) today looks at inflation in Latin America in 2007 and 2008, as governments throughout the region decide how to cope with the world economic slowdown.

"Governments should not be overly worried about the potential inflationary effects of expansionary fiscal and monetary policies in the current economic situation," said Mark Weisbrot, Co-Director of CEPR and co-author of the report, "Inflation Experiences in Latin America 2007-2008."

"The most important thing is bold and decisive action to counter the downturn," he said.

The paper examines the recent inflation experiences of ten Latin American countries: Brazil, Mexico, Venezuela, Colombia, Chile, Peru, Ecuador, Guatemala, the Dominican Republic, and Bolivia. It constructs a core inflation index (excluding food and energy), and looks at three-month changes in both headline and core inflation. It focuses on the increase in inflation from April 2007 to July 2008, driven by a surge in food and energy prices worldwide. These prices have since dropped considerably.

The authors conclude that macroeconomic policy that does not take into account the temporary nature of these price shocks may result in an unnecessary slowing of growth, with reduced output and employment.