Economy January 18, 2025 | 12:00 pm

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Inflation drops slightly in Latin America despite uncertainty over Trump’s arrival

Latin America begins 2025 with the expectation of continuing the decline in inflation, albeit at a slower pace than that observed in 2024, and with the challenges and uncertainty posed by Donald Trump’s arrival in the White House.

According to the latest report from the Economic Commission for Latin America and the Caribbean (ECLAC), the projected Latin American growth rate for 2024 is 2.2%, while 2025 stands at 2.4%.

The same organization points out that inflation in the region has shown a downward trend, so it estimates that the total for 2024 would drop to 3.4%.

However, Latin America’s challenges, which closed 2024 with the disparity between countries that recorded high inflation rates, those that failed to meet their projections, and those that achieved a better “control” of price variation, will be permeated by Trump’s economic policies, which will be sworn in for a new term next January 20.
Uncertainty about Trump

The U.S. president-elect has promised a tax cut and has threatened to impose more substantial tariffs, which could generate a “deficit” and pose a “risk” for exchange markets, according to Alejandro Espitia, professor of Development and Macroeconomics at Colombia’s Javeriana University.

For Espitia, it would be “almost impossible” to balance Trump’s proposed spending increase, tax cuts, his intention to “weaken the dollar,” and increased tariffs on his trading partners. He says this “cocktail of measures” creates “great uncertainty and would have brutal effects on the growth” of the economy.

“We have to see what happens. Surely (with all these measures) the Federal Reserve (Fed) will have to raise interest rates,” predicts the expert, who argues that the ‘contradiction in the decisions’ taken by Trump will ‘terribly’ affect the region’s markets. During his first term (2017-2021), the Republican was a “bit stuck,” says Espitia, about the “obstacles” that even his party put in his way.

But, for his next administration, “the Republicans need Trump more than Trump needs the Republicans,” so “surely many things (of those he proposes) he will be able to do.” Countries with better “control” of their inflation.

Among the region’s inflation performers, Argentina stands out. Its consumer price index (CPI) stood at 117.8% year-on-year, the eighth consecutive deceleration under Javier Milei’s government. In Venezuela, inflation was 48% in 2024, according to preliminary figures announced by Nicolás Maduro, who was sworn in on January 10 as president for a third six-year term.

Despite this figure, the independent Venezuelan Finance Observatory (OVF) reported that inflation closed at 85%, a reduction of 108 points from 2023, when it ended at 193%. Nicaragua had an inflation rate of 2.84%, 2.76 points lower than in 2023.

Ecuador closed the year with 0.53%, some 0.83 percentage points below 2023 and the lowest since 2021. And Colombia recorded inflation of 5.2%, -4.08 points from 2023 when it stood at 9.28%.
Mexico’s inflation rate, meanwhile, also fell to 4.21%, its lowest level in nearly four years. The US CPI rose by two-tenths of a percentage point in December to 2.9%, closing 2024 far from the 2% target and with a rebound that complicates the pace of interest rate cuts initiated in September by the Fed.
The Dominican Republic recorded inflation of 3.35%, the lowest in the last six years and slightly lower than in 2023 (3.57%).

Brazil’s inflation rate was 4.83%, above the target ceiling set by the Central Bank (4.5%) and higher than the 2023 figure (4.62%). Costa Rica reached 0.84%, outside the target range set by the Central Bank of between 2% and 4%, for the third consecutive year. In 2023, it posted a deflation rate of 1.77%. Bolivia closed with a cumulative inflation of 9.97%, the highest since 2008 (11.8%).

In Chile, the CPI was 4.5%, below the Central Bank’s estimates, after ending 2023 at 3.9%. Challenges and expectations for 2025 After knowing the inflation figures in the different Latin American countries, the expectation today is focused on Trump’s actions, which, for Celso Melo, professor of Economics and Finance at Jorge Tadeo Lozano University, will lean towards “protectionism.”

This expert agrees with Espitia when considering the “degree of uncertainty” generated by Trump’s possession and the “tensions” that -he assures- could be generated by his “abuse in the increase of protectionist measures.”

The United States will bet on strengthening its economy, controlling inflation, and accommodating employment,” analyzes Melo, who adds that the new government ”will seek to recover lost territories within the dynamics of international trade.”

Thus, beyond the “fiscal adjustments” implemented by Latin America, the outlook for 2025 will also depend on the “social and political order” of the region, warns Melo, as these dynamics “will influence” Trump’s measures.

For this reason, and concerning the trade war that the Americans are waging with China, Melo suggests renegotiating or improving the conditions of the Free Trade Agreements, which would be a “win-win” for both the US and Latin America, a “natural partner” of what “continues to be” the world’s most important economic power.

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