The value of US crude jumped to its highest level since 2008 this month, while the price of wheat hit a record high. Ukraine and Russia represent 30% of world cereal exports.
The current spike in wheat prices was triggered by the Russian invasion of Ukraine, the sanctions imposed on Moscow and the trade disruptions that followed. The World Bank noted that several developing countries face short-term wheat supply shortages due to their dependence on Ukrainian exports.
Russia was the main exporter of wheat in 2018 and Ukraine the fifth, according to data from the World Bank. “Food and energy inflation is coming on top of a legacy of high inflation from the previous (COVID-related) shock,” Goldfajn said.
Supply chain bottlenecks related to the pandemic had already put Latin America on a path of monetary tightening, with major central banks raising interest rates, both to fight inflation and to hedge against the expected outflow of capital in search of returns in developed countries. Now they would have to raise rates even higher.
According to Goldfajn, a further rise in borrowing costs, the corrosive effects of inflation on incomes and a slowdown in the global economy could undermine growth in the region.
With inflation-adjusted incomes falling and the global economy slowing, Latin America is facing a scenario similar to that of 2018-2019, when citizens took to the streets in protests that only stopped when lockdowns were imposed due to to the pandemic in 2020.
“The Governments must continue to strengthen well-targeted social safety nets, seeking to expand them and broaden coverage and scopeGoldfajn said.
As the region’s largest grain exporters, Argentina and Brazil could benefit, at a time when Colombia could tap into its oil exports. Chile’s mining capacity should also be a positive element.
Source: Ambito
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