Inflation: how to reduce it and reach 2031 with one digit
The countries that were taken into account were: Ecuador, Sao Tomé and Principe, Sudan, Cambodia, Lebanon, Mongolia, Albania, Belarus, Jamaica, Peru, Romania, Turkey, Uruguay, Poland, Sierra Leone, Angola, Guinea-Bissau, Mozambique , Uganda, Russia, Israel, Mexico, Serbia, Moldova, Zambia, Ghana and Costa Rica.
Of all those countries, the one that took the least time to overcome inflation was Ecuador, dollarization involved, while the one that took the longest was Costa Rica, with a record of 27 years.
‘We define a’successful disinflation process‘ as one in which, after having reached an inflation rate between 80% and 200% per year in a given year between 1980 and 2022, three consecutive years of a single-digit inflation rate are reached,” the report explained. .
He himself pointed out that “the range of 80% to 200% was chosen to find inflationary ratios similar to those of Argentina (which ended 2022 with 94.8%) and, also, to exclude hyperinflations from the analysis, due to the evidence of that -paradoxically- it is “easier” to reduce inflation once hyperinflation is unleashed, as shown by the Argentine case of 1990″.
The consultant suggested that “A recent study by the International Monetary Fund (IMF) explains that, in Latin America, starting in the 1990s, inflation ‘was relegated to the history books’ in most countries.
“The study finds that the cause of success were the monetary reforms carried out by them, including Argentina, Ecuador, Chile, Peru, Mexico and Brazil, among others,” the paper said.
The elements that successful economic plans had in common were:
- A new narrow mandate for the Central Bank focused on the stability of the purchasing power of the currency.
- Independence and autonomy for the Central Bank, where the monetary body would not only set its objectives and shield itself from political pressure, but in many cases, the direct financing of the treasury deficit was “strictly restricted or directly prohibited by constitutional mandate in Chile, Colombia, Ecuador, Guatemala, Mexico and Peru, among other countries”.
- Finally, a greater transparencywith central bankers forced to appear before Congress and before society for their actions, achievements and failures.