Hyperinflation or Stagnation, Which Is Worse? Ask Latin America.
For much of the region, the long-held fear of inflation and instability has been replaced by a new fear of deflation and secular sluggishness.
There is little to celebrate in the victory over inflation.
Photographer: KTSDESIGN/Science Photo Library via Getty Images
For Brazil, it should have been a momentous occasion. The country’s central bank cut its target overnight rate, known as the Selic, for the fifth time since July, and in doing so, sent the benchmark below the most recent rate of inflation. Effectively, Latin America’s largest economy now has negative real interest rates. It’s a startling development that speaks volumes about the region as a whole.
The move on Wednesday, easily missed amid the drama of world markets, neatly encapsulates how generations’ worth of assumptions about Latin America and its economic issues must now be thrown aside. For decades, the region’s problem has been inflation and the incipient risks of currency and debt crises. That pathology lives on in places, most painfully in Argentina and in the disaster that is the Venezuelan economy. But for much of the region, the fear of inflation and instability has been replaced by a fear of deflation and secular stagnation. It is a remarkable change.