June 13, 2024

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How much is needed to cover basic costs in Latin America? From small to large

How much is needed to cover basic costs in Latin America?  From small to large

Inflation in Venezuela stood at 11.5% in September, the Financial Observatory says Credit: Mairet Chourio | @mairetchourio

Although it has already declined in much of the region, inflation has put pressure on household finances in Latin America and increased the cost of essential goods such as food, pushing up budgets to cover basic costs.

By bloomberglinea.com

Paraguay is currently the cheapest country to cover basic expenses excluding housing rent, estimated at US$446 per month, according to a report by research firm Statista.

Paraguay is followed by Argentina (US$469), Bolivia (US$481), Peru (US$495), Colombia (US$527), Ecuador (US$541), Brazil (US$553), Nicaragua (US$553.3) and Venezuela (US$601).

Another block includes Guatemala (US$638), El Salvador (US$645), Honduras (US$645.2), Chile (US$703) and Mexico (US$706). And the most expensive countries to cover basic costs are Panama (US$779), Costa Rica (US$865) and Uruguay (US$887).

“Paraguay is a country with the lowest import duty rates in Latin America. Paraguay has decided to become the axis and integrator of major economies with the rest of Latin America, and this has had a direct impact on the country’s economy as it is an open economy with high competition, so prices are cheap,” he said. Bloomberg Tax Leonardo Trevisan is Professor of International Relations at ESPM in Brazil.

Brazilian economist and expert in geopolitics, Leonardo Trevisan, explains that Uruguay is the opposite economy to Paraguay in that, like most Latin American countries, it is a very closed market, and its economy depends on the agricultural sector.

“Uruguay has very little industrialization and its economy is very dependent on the agricultural sector and very protected, which is related to its monetary profile. Being an export economy, it makes every effort regarding its exchange rate to make life easier for exporters,” he noted.

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In his view, this characteristic of a closed economy largely explains the high cost of living in Uruguay, although he points out that it is a more common phenomenon throughout Latin America, citing the specific case of Brazil.

“If we look at the case of Brazil, contrary to what we think, it is a very closed economy, with high tax rates for various goods, which in practice preserve national structures, but make the cost of living more expensive (…). This is a phenomenon that is not unique to Brazil. With some exceptions like Paraguay, most This is the case in Latin American countries,” he noted.

What affects the cost of living?

Professor Federico de Cristo of the Faculty of Business Sciences at the Universidad Austral in Argentina said differences in the cost of living can be explained by the level of GDP per capita, as countries with higher GDPs have higher costs. Standard of living is measured in dollars. Among other factors, this refers to the taxation of markets, which is reflected in prices and increases the cost of living.

In the case of Argentina, it points out that rapid changes in the exchange gap between the official dollar and the pegged dollar contributed to an increase in the cost of living. It refers to the “rapid increase in regulated prices suppressed for four years” and the PAIS tax, which “makes the official currency more expensive for importers, and even for imported inputs that make local production more expensive.”

He explains that Paraguay has low public spending, a limited social security system and spending on health and education. According to De Cristo, other countries in the region have higher spending in these areas, leading to higher taxes to balance public accounts.

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“Higher taxes drive up prices and the cost of living. Also, in some countries there is a large gap between the wage cost of companies and what the worker actually earns, after taxes, contributions and other deductions, which makes the wage cost of production more expensive,” he explains to Bloomberg.

On the other hand, he points out that it is important to understand what consumption basket is considered to calculate the cost of living. In countries with high poverty and poorly regulated labor markets, with relatively low wages, manufacturing services tend to be relatively less expensive than in countries with high labor costs.

The Australian University professor points out that each country’s productivity needs to be taken into account, explaining why regions with higher wages can produce at lower costs, while others with lower wages have uncompetitive costs due to lower productivity.

The incidence of cost-of-living inflation in Latin America

Among key regional markets, the consumer price index in 2024 will be 160% in Venezuela; 149.4% in Argentina; 5.7% in Uruguay; 5.3% in Colombia; 4% in Paraguay; 3.8% in Brazil; 3.5% in Mexico; 3% in Chile; 2.4% in Peru and 1.5% in Ecuador.

Leonardo Trevisan of the ESPM Institute in Brazil points to the rise in the cost of living worldwide due to inflation unleashed after the pandemic and global events such as the war in Ukraine, which has mainly made energy sources more expensive. .

He also cited the example of the fertilizer sector, vital to the region’s agricultural production, which was hit by inflation and the effects of the war in Ukraine, which contributed significantly to food prices on the continent.

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For Latin America, it also represents the internal factor of weakness of several currencies of the major regional markets relative to the value of the dollar. “The dollar has risen, which has had a direct impact on the cost of living in these countries because they depend on it,” he told Bloomberg.

According to the latest projections by the International Monetary Fund (IMF), inflation in Latin America and the Caribbean will reach 16.7% in 2024, 14.4% in 2023, and 14% in 2022. The agency forecasts that inflation will reach 7.7. % in 2025 and it will reach 3.6% in 2029.