Inflation would begin to slow down in the second half of 2023, estimates the Santander bank

Madrid, Spain.- Although today there is the highest inflation in 40 years, Santander at a global level estimates that it should begin to show clear signs of deceleration in the second half of 2023 in most geographies.

Juan Cerruti, chief economist of the group at a global level, explained that the high inflation experienced worldwide is due to four fundamental factors: bottlenecks and supply interruptions after the pandemic; increases in energy and food costs; expansionary monetary and fiscal policies in recent years, and a shortage of labor supply in several economies.

In the framework of XIX Santander Latin America Meetingpointed out that different types of inflation are experienced depending on the region, being in the United States due to demand issues, in Europe due to supply and in Latin America due to inertia.

However, he stressed that the proportion of central banks raising interest rates is at record highs since the 1980s, with the United States Federal Reserve (FED) taking the lead, although he stressed that those of Latin America started the cycle, on average, nine months before the main ones, so these are already close to finishing.

Opportunities and challenges for LA

The Santander group economist explained that the cycle of tightening monetary policy and the strength of the dollar put pressure on the external sector of emerging markets, however, he said, so far Latin America is sailing well in these waters.

This is due, he said, to high levels of prices of raw materials; better macroeconomic fundamentals, and the early reaction of the central banks of the region.

Global slowdown, but the region with good fundamentals

Juan Cerruti argued that, despite the fact that 2022 has been the year with the highest global inflation in several decades, and the outlook for 2023 indicates a global slowdown, as a result of the fall in consumption and investment due to inflation and the greater certainty, geopolitical tension and tightening of monetary policies, Latin America starts with good fundamentals and its central banks have earned a reputation in an environment that will be challenging for the region.

“The economic recovery will be seen gradually from the second half of 2023 and the beginning of 2024,” he said.

In Mexico, expectations have risen

Rodrigo Brand de Lara, chief economist at Santander Mexico, pointed out that in the country, in line with the global trend, inflation has risen and today the general inflation is at 8.7%, which would have reached the peak, although the underlying does not yield, mainly due to the increase in the prices of food merchandise.

For this reason, he pointed out that inflation expectations for the short and medium term have increased, while for the long term, they remain stable.

In this sense, he predicted that the reference rate will continue to rise, and estimated that at its meeting next week, the Bank of Mexico (Banxico) will raise it again by 75 basis points, which would reach 10.0%.

“Inflation could prove more persistent than expected, leading to higher-than-anticipated interest rate hikes,” he said.