Macro Economia

Strictly Macro

• Food inflation risks – Foodstuffs may cause a 100 bp hike in overall CPI inflation across the region until July, just considering the lagged effects from rising soft commodity prices in 2H10. We find Mexico slightly better positioned to deal with mounting inflationary pressures, a common theme virtually everywhere. Brazil’s inflation outlook fails to improve – Recent fiscal adjustment is probably insufficient, with inertia likely to generate inflation headaches into 2012. • •

February 16, 2011

Ernest W. (Chip) Brown Chief Economist, Latin America ebrown@santander.us 212 583 4663 Juan Pablo Cabrera Latin America Economics / Strategy jupcabrera@gruposantander.com (34) 91 257 2172 Sergio Galván Chief Economist, Argentina sgalvan@santanderrio.com.ar (5411) 4341 1728 Alexandre Schwartsman Chief Economist, Brazil aschwartsman@santander.com.br (5511) 3012-5727 Juan Pablo Castro Chief Economist, Chile jcastro@santander.cl (562) 336-3389 Gabriel Lozano S. Chief Economist, Mexico glozano@santander.com.mx (5255) 5269-1932 Marcela Bensión Chief Economist, Uruguay mbension@santander.com.uy (5982) 1747-5537

Food inflation across the region: More to come in 2011 The resumption of inflationary pressures in the global food industry has been an increasingly important market theme over the past few months, reflecting the steep uptrend exhibited by soft commodity prices in 2H10. Different measures of global food prices are all suggesting that a new round of “agflation” is underway, with potential second-round effects on the global economy in 2011. Taking December 2010 levels, both the FAO and CRB food indexes are now 25-30% higher than a year ago, while the SPGS agricultural price index is up 45% y/y. From an inflation viewpoint this means a more tangible threat for central bankers in the EM world, as foodstuffs in lower-income countries account for a higher share of national CPIs, compared with the industrialized world. The 2007-2008 spike in food prices...