Latin America's inflation lessons for the G7

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Latin America rarely leads the world in economic policy. The region has struggled to grow since the last commodity boom, lacks competitiveness and remains overdependent on raw material exports. But can it teach the G7 a thing or two about fighting inflation?

While central banks in the UK, US and Europe remain on the back foot in battling stubbornly high inflation, Latin America's central banks have flexed their inflation-busting muscles and are reaping the rewards.

Good timing helped. Latin America was quick off the mark to raise interest rates, beginning with Brazil in March 2021 ? a full year before the US Federal Reserve.

"Latin America led the tightening cycle," said Alberto Ramos, Latin America chief economist at Goldman Sachs. "Its central banks didn't have the luxury of credibility."

Barely a month after congress approved the central bank's independence from the government, the Banco Central do Brasil started to push up rates aggressively, from 2 per cent to a lofty 13.75 per cent, one of the world's highest levels for a major economy.

Its tactics worked. Brazil is now making gains in the war on inflation, which has declined from a peak of 12.1 per cent in April to just under 8 per cent last month.

That price-fighting success has not killed growth: JPMorgan expects Brazil's economy to expand a better than expected 2.6 per cent this year, not far short of the 3 per cent it predicts for China.

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