“The increase in crude oil, food and metal prices fuels inflation, which leads to an increase in the average annual rate in Latin America to 7.3% in February, from 2.8% a year earlier,” said Gersan Zurita, Senior Vice President from Moody’s.
“We expect inflationary pressures to moderate in the second half of the year, but inflation will remain well above central bank targets,” he added.
The increase in commodity prices will benefit energy producers in countries where prices remain at international parity, such as Brazil, Chile, Colombia and Peru.
They will, however, increase input costs for transport – higher fuel prices will hit airlines if they fail to increase fares enough to offset it – and for agriculture because Russia’s fertilizer exports are important for Latin America, especially for Brazil. The restricted access to raw material will have limited effects for the manufacturing and infrastructure sectors, it was considered in the work.
Auto parts suppliers, for example, will be able to shift production toward less semiconductor-intensive vehicles if chip shortages continue or worsen.
Despite supply chain disruptions, infrastructure companies that are increasing installed capacity should not face additional costs due to fixed-price construction contract terms.
Financial institutions in Latin America are relatively isolated from the financial sanctions that affect Russia, due to the fact that they have a limited commercial relationship with the countries involved in the armed conflict. Therefore, it was considered that most of the effects will be indirect and will materialize as macroeconomic risks.
Inflation creates risk for consumer and cost recovery securitizations of public companies. The performance risk will be greater for those bonds backed by residential mortgages and consumer loans, because inflation restricts the ability of debtors to pay, it says.
Source: Ambito
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