Peru is at risk of stagnation, low income and inflation, warns the World Bank

The Vice President and Chief Economist of the World Bank, Carmen Reinhart, warned that Peru is among the group of countries at risk of “stagflation”. This refers to a possible stagnation of the economy, either due to low or negative production growth and high unemployment. Added to this is the persistent inflation.

“Without being melodramatic, I think inflation is the reality of many countries. Countries at risk of stagflation are those with the highest inflation and lowest income than there were before the pandemic. We then have a situation of high inflation and low recovery,” he said.

Reinhart also emphasizes the high inflation faced by countries with lower household incomes compared to what was before the pandemic. The chief economist of BBVA Research, Hugo Perea, said that Peru's per capita GDP has not recovered. This means that people earn less income than before 2020.

“There has been no growth in the average income from the problems in these 2 years. If the economy is one point above 2019 and the birth rate is one point a year, then the number of Peruvians has grown by 2% and in that same period GDP has grown by 1%. That is, the cake has grown less than the people who want to eat it, explained the economist,” explained Perea.

For this reason, the economist believes that there is a stagnation in the growth of the population's income.

On the other hand, the head of the Macroconsult Information Service, Eduardo Jiménez, said that the risk of high inflation in the country would currently have a strong impact on the most vulnerable families.

He himself recalled that there is a precariousness of employment due to the pandemic. In addition, there was an increase in the price of products from the family basket, such as chicken or bread. This is also the result of increases in international prices for grains such as wheat and maize, which would also hit the poorest families.

“At the end of the day , the one who eats inflation the most is the poorest, because it has no way to cope with a situation of rising prices. You raise the price of chicken by one kilo and they're killing them. The gas balloon went from 35 soles to 55 soles in four months. It's a brutal thing. This is a very big problem,” he said.

Rainhart believes that the country's central banks, such as the Central Reserve Bank (BCR), should make decisions without waiting to see what the US Federal Reserve does. He also recalled that in the 1970s it took a long time to react to stabilize inflation at that time. This is a panorama other than repeating now.

JULIO VELARDE: “WE DON'T KNOW IF WE WILL MANAGE TO CONTROL INFLATION”

On March 25, Julio Velarde, president of the Central Reserve Bank, indicated that Peru is going through the longest period of inflation over the past 20 years. He even pointed out that “we don't know how we're going to deal with this.”

“Before the invasion of Ukraine, we already had the price increase caused by inflation. However, we believed that we could return from here in late 2022 to the situation we had before. Now this is postponed for another year. We don't know if we will achieve this in the first half of 2023. We have already failed to achieve our goals five times in the last 20 years,” he commented during the International Conference for the Centennial of the BCRP.

“Uncertainty is a reality. Roberto Campos Neto (president of the Brazilian Central Bank) mentioned April as the peak of inflation in Brazil, we don't know yet, but possibly the peak of inflation in our country is there,” he added.

Although various studies have been done to counteract inflation, there are various factors at the global level that do not allow this to recede.

“Keep in mind that the sowing in Ukraine is in April, then you will see what the situation is like and what is the effect on prices. Lately prices have been increasing, partly due to the mechanisms of transmission in international markets of the price of wheat,” he said.

“We have increased this target eight times and we estimate that our normal rate is 1.5%, we were hoping to get closer to this. It depends on the projections. It is a difficult situation, because we are used to a low rate of inflation and since we have been outside our expected range for so many months we don't know how economic agents are going to react,” said Velarde.