Inflation Targeting in Latin America
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Inflation Targeting in Latin America shows how the Latin American countries have lowered the inflation rate and formulated a better monetary policy through the adoption of Inflation Targeting.Latin America had been holding a notorious record of highest inflation rate for a long time. After 1990, Latin America started their price stabilization effort by implementing inflation targeting.
Early Problems:
In the Latin American countries financial policies had been determined by fiscal financial requirements. Due to the unstable and troubled political situations in Latin America, issues like full employment, economic growth and price stability had been neglected for a long time. For this reason inflation rate shooted up.
Reasons for the adoption of Inflation targeting:
- The adoption of inflation targeting will make way to lower the rate of inflation and also improve the monetary policy.
- By announcing the inflation target publicly the government can improve it’s accountability to the people.
Inflation Targeting in Different Latin American Countries:
Chile was the first country who espoused inflation targeting in Latin America. In Brazil and Columbia inflation target is set by the Central Bank and Government together. The target levels are determined by the open market operations in Brazil, Peru, Chile, Columbia and Mexico. But Peru, unlike the other four countries, doesn’t publish the report of regular inflation.
Columbia had suffered from a fiscal dominance which results in the delay of the stability program. After the 90s Mexico had started inflation targeting as a tool of their stability program. Mexico is the last among this list of countries to announce the inflation target.
The Effect of Inflation Targeting on the Expected Inflation of Latin America:
The expected inflation is calculated by comparing the nominal and real values of the rate of interest of similar goods which depend upon the wage and inflation calculating equation. Inflation expectations are also calculated by a four quarter moving average of the earlier inflation targets.
Concluding Remarks :
After suffering from a high inflation for a long time, almost forty years, the Latin American countries have put a step forward towards the adoption of inflation targeting during the last decade. Therefore, now, the inflation rate has come down below 10% which helps to improve the economic condition of Latin America .
