Supply, demand and inflation mark the economic way in 2022

December 07, 2021

Next 2022 will be a good year for the world economy. Such is the forecast of most international organizations that bet on growth and a continued trend that began in late 2020, when the countries started to recover from the tough blow inflicted by COVID-19.

The projection for 2022 displays significant growth in the global economy. Although not as ambitious as in previous years, next-year scenario will have its advantages and variation, particularly concerning increasing demand, low supply, and inflationary levels.

As many Latin American and Caribbean countries are coming back to normal, high consumption of goods and scarcity of commodities will landmark the economic way in 2022.

Both the weekly reports of the International Monetary Fund (IMF) and the annual report of the US investment bank Goldman Sachs put an emphasis on supply, demand and inflation, particularly because all of the three indicators will be highly influential on the regional economic growth, estimated to be at a slower pace.

According to Goldman Sachs, for the next 12 months the markets will continue attending sort of “horse race, albeit with a gradual slowdown in demand from very strong levels while little by little the supply shortage will ease.”

The US firm expects that the disruption in the supply chain will be gradually beaten and that the demand of goods will be normalized as the expenditure in services will recover and the tax momentum disappears.

For Nigel Chalk, Deputy Director in the IMF's Western Hemisphere Department, “Inflation is definitely a matter of concern in the region.” Chalk warned against the impact of higher prices of commodities and food, a disrupted supply chain and global rising prices of goods, pushing up consumer prices.

According to the IMF, transient supply-demand imbalances and recent pressures on prices mostly reflect the unusual progress related to the pandemic. The organization reckons that inflation will go back to the ranking recorded before COVID-19 in most countries in 2022, as these shocks remain mirrored in pricing. All in all, uncertainty persists, they said.

The experts of Goldman Sachs noted that we have just passed a couple of months with supply as the leading character. Oil and gas prices skyrocketed, inflation is surprisingly on the rise and initial interest rates have surged as a whole.

Right now, inflation hit 5.8% in Peru, 6% in Chile, 6.2% in Mexico, 10.7% in Brazil and 52% in Argentina. For now, some forecasts estimate Latin American inflation rates averaging 11.9% this year and 10.4% next year.

For Latin America and the Caribbean, IMF put the inflation rate at 9.7% in 2021 and 6.9% in 2022. In South America, the projection is particularly high, compared to the rest of the region, i.e., 12% in 2021 and 8.9% in 2022, without including data of Argentina.

In the institutional context, the scenario will be “very different” from previous inflationary cycles, since many central banks are reacting “correctly to these pressures with rising interest rates and commitments with inflation goals.”

Key topics: pymes