Pandemic takes its toll on inflation

The hospital infrastructure in several regions of the world, especially in underdeveloped countries, has collapsed again. The resources made available to keep it afloat are not sufficient. Immunization is disrupted by social unrest and economic instability. This scenario could only be countered by fiscal reforms.

The bill that will come to countries will be the one that implies a reduction in their sovereign debt ratings; thus, taking them below investment grade. This means that all economic sectors with capital needs through credit will see their flow become more expensive, given that interest rates are on the rise. This applies to the public sector and is immediately replicated in the private sector.

In such a scenario, economic growth slows down, the fiscal rule is broken and current account imbalances are nested for each country. And that is not the end of it; the galloping inflation that is looming is not coming from the demand side. It comes from the lack of supply of goods and services and the increase in the prices of raw materials.

Inflation; that monetary phenomenon that compromises the capacity to acquire something with a certain amount of money; puts the most expert economists and financiers, including the technicians that make up the economic teams of a government, in a tight spot.

Read more about inflation

Bank intervention rates are a mechanism to control inflation. If an increase in inflation is observed, rates are adjusted upwards and if the opposite happens, rates should be cut. Hence the comment about credit becoming more expensive for those who have credit obligations.