Inflation demons back to haunt Latin America

Tue Jun 24, 2008 9:43am EDT
By Stuart Grudgings
SANTOS, Brazil (Reuters) - Within sight of tankers shipping Brazilian coffee, grains, and biofuels to the world, Marilene Gary packs the week's groceries into her car and laments how little her money bought.
Even shopping at the Dia economy supermarket, instead of the pricier Pao de Acucar store she used to frequent, doesn't bring her much relief from prices of beans, rice and sugar she says have surged this year.
"I'm buying less but spending more than I was, and looking for places like this. At other stores, what I bought today would have cost double," said Gary, a 57-year-old housewife in Santos, Brazil and Latin America's biggest port.
"I used to have a pantry fully stocked, now I just use a small cupboard."
Her complaints are being echoed by consumers throughout Latin America as inflation, a regional curse in the 1980s and 1990s, threatens to undermine the robust economic growth of recent years and in some cases weaken governments.
Argentina and Venezuela are the worst-affected countries, with annual inflation believed to be well into double digits.
But sharp price rises in fuel costs and in staples from tortillas in Mexico to beans in Brazil are eating into incomes throughout the region.
While farmers in agricultural powerhouses such as Brazil and Argentina are benefiting from the global jump in food prices, millions of urban poor are being forced to economize, changing their diets, shopping habits and other routines.
Laura Campos, 32, remembers cycling for blocks to find a loaf of bread amid widespread shortages during Argentina's hyperinflation of the late 1980s.
"Now I'm afraid of going through the same thing we endured at that time. If things continue this way, I don't know what's going to happen," she said.
Accustomed to eating beef every day, her family has had to switch to more meatless dishes like pasta with a fried egg on the side, or polenta with tomato sauce.
COOKING THE BOOKS
Annual inflation in Argentina is running at between 20 percent and 25 percent, analysts say, far higher than government figures that are widely disbelieved. Months of farm protests against a government tax rise have stoked inflation.
In Venezuela, whose 2007 inflation rate of 22.5 percent was the continent's highest, 46-year-old restaurant manager Maricruz Alamo said price rises had spread beyond food.
"Sanitary towels -- when you see the price you say, damn it, I should have been born a man," she said.
Venezuela's inflation has been driven in part by shortages of basic groceries, a problem businesses blame on price controls but which President Hugo Chavez's government says is caused by rising demand.
Martha Bernales, a middle-class homeowner in Peru's capital Lima, said the sharp price rises of chicken and bread she sees don't seem to tally with government figures, which show food prices rising at about 10 percent annually.
"I feel like the government hides things and manipulates the numbers so as not to alarm people," she said.
The rise in politically sensitive food and fuel prices is putting pressure on governments.
The International Monetary Fund estimates the region's economy will grow 4.4 percent this year, still modest compared to expected growth of over 7.0 percent in emerging markets in Asia and almost 6.0 percent in eastern Europe.
But in the short-term, inflation remains the main problem in the region, jumping to 6.6 percent this year from 5.4 percent in 2007, according to the IMF.
In the region's biggest economy, Brazil's central bank has started to raise interest rates, despite the risk this could undermine buoyant consumer demand. Mexico, with inflation running near 5.0 percent, followed suit last Friday and raised borrowing costs for the first time in eight months.
Some governments are also opting for more short-term fixes, by under-reporting inflation and considering food price controls, something the World Bank has warned the region could backfire later and threaten long-term development.
Mexico said last week it would freeze prices on some 150 food products. Colombian President Alvaro Uribe said on Saturday he will seek a deal with business groups and labor unions to control soaring food prices in the Andean country.
That would come as a relief to Bogota taxi driver Victor Agusto Mendivelso, who said he was increasingly struggling to feed his three children despite working from 5.00 a.m. until 9.00 p.m.
"It's affecting me a lot because the money is not enough," he said. "We're having to go without food." (With reporting by Hilary Burke in Buenos Aires, Terry Wade in Peru, Brian Ellsworth in Caracas, and Alisha Laventure in Bogota;)