“Distribution  of   Inflation  Impact:  The  Recent  Experience  in  Central  America  and  Mexico”

What has been the differencesin the properties of inflation across income groups in Mexico and Central America?

In  October  of  2008,  even  in  the  presence  of  the  largest  financial  crisis  since  the  great  depression,  60  percent  of  the  households  on  earth  experienced  inflation  above  10  percent.  The  US  financial  crisis  and  its  contagion  will  create  a  recession  worldwide  that  should  reduce  the  inflationary  pressures  in  te  short  run.  However,  in  the  resolution  of  such  crisis,  central  banks  are  printing  currency  as  we  have  never  done  in  the  past.  Needless  to  say,  the  recovery  should  be  accompanied  by  a  rise  in  inflation  again;  and  the  problems  that  seem  to  have  plagued  our  recent  past,  are  bound  to  reappear  two  years  from  now.  

The  recent  inflation  has  a  particular  characteristic  that  makes  it  different  from  previous  episodes  –  it  is  mainly  in  food  prices.  Indeed,  in  the  last  10  decades,  in  the  world,  the  average  inflation  in  food  was  almost  always  lower  than  the  inflation  in  services,  except  during  wars  and  the  past  5  years.  In  fact,  because  inflation  has  been  concentrated  in  food  and  energy  it  has  had  a  severe  distributional  impact.  So  much  that  in  countries  such  as  Panama,  where  a  very  high  growth  rate  has  occurred  in  the  past  couple  of  years,  unprecedented  in  the  last  couple  of  decades,  still  finds  the  incumbent  party  in  a  contested  election.  The  reason?  Very  simple,  inflation  has  been  particularly  unfair.  

The  purpose  of  this  paper  is  to  document  the  distributional  impact  of  recent  inflation  in  a  region  where  inflation  is  likely  tohave  a  significant  political  and  social  effect.  The  paper  documents  first  the  very  large  differences  that  exists  in  consumption  baskets  and  then  documents  the  differences  in  nflation  across  the  countries  and  income  groups.

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