IMF: Well-anchored inflation expectations should help Latin America
Well-anchored inflation expectations in Latin America - the result of advances made by the region's central banks over time and which reinforce resilience to external shocks - should help to cushion the effects of the rise in oil prices associated with the conflict in the Middle East, according to a study by the International Monetary Fund (IMF).
"Well-anchored expectations help limit the transmission of increases in energy prices and other commodities to prices in general, as no one expects these temporary increases to translate into higher inflation in the future", points out the report, published this Tuesday (26).
According to the document, although inflation forecasts in Latin America remain, on average, further from the target than in advanced economies, the dispersion of expectations is similar in both groups. For the IMF, this is compatible with the perception of reliable economic authorities, who act within institutional norms and limits.
The Fund, however, warns that this "hard-earned" credibility can easily be lost. The study concluded that a more restrictive monetary policy than expected generates modest gains in anchoring - in a moderate way and with some delay. A policy that is more expansionary than expected tends to produce much stronger negative effects, leading expectations to deviate from the target.
For the IMF, countries like Brazil, Chile and Argentina illustrate how changes in monetary policy affect expectations and bring important lessons. The most appropriate monetary regime depends on the context: inflation targeting may not be the ideal option when inflation is very high, although they are generally a key component of stability-oriented policies.
This, however, does not mean that the target regime requires a "perfectly calm" situation to be implemented. According to the IMF, broad institutional support is essential in almost all cases.
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Source: CNN