It is no secret to anyone that the inflation obtained for Latin America will torment its growth by 2022. Some Latin American countries with inflation rates between 5.6% (Col) and 7.4% (Mex), passing through 7.2% (Chile) and 6.4% (Peru), will have to face new challenges in increasing prices to meet their supply chain.

The main monetary policy tool that the governments of these countries will have to control higher inflation will be to increase interest rates, which will have an effect on liquidity and making credit more expensive. The situation worsens when the additional debt margin of these countries is already at over-indebtedness levels. With this context, it is important to understand what implications this has for companies.

The breakup of “just in time”

In 2019 the economy worked like a fine-tuned machine. Manufacturers, farmers, restaurants and merchants were confident that their supply would arrive “just in time.” They got what they needed, when they needed it; which kept the cost of inventories low and made the economic dynamics move as efficiently as possible.

During 2020, changes in demand were generated, generating imbalances in the economy. We all remember the excessive purchase of toilet paper and milk. This caused companies to have a portfolio of the wrong products in their inventory to meet a new demand. The tuned machine was out of adjustment.

The same logistics experts who for many decades promulgated “just in time” now without hesitation promulgate that production should consider overproduction “just in case.” The demand for some goods has also broken its natural balance, causing people to buy goods in anticipation of their need, which has generated an increase in prices and shortages in many areas.

On the other hand, there is no rush among many companies to make significant investments to increase installed capacity, because the uncertainty of demand behavior in the medium and long term continues to be high. Many producers are in no hurry to build greater installed capacity because they see this phenomenon as temporary.

This new uncertainty in the supply chain has restarted the inventory cycle of all industries at the same time, with implications throughout the economy.

What to expect in 2022?

It is important to clarify that Pandemic inflation was not just an excess of liquidity seeking to capture the same goods and services. This is a reconfiguration of the details of supply and demand. The shortages generated for some goods come from those changes and those shortages have cascading impacts on many supply chains that make our economy productive.

The pandemic has brought us an increase in prices, which comes from a machine tuned since 2019, isolation in 2020 and the chaotic recovery of 2021. It will take time and investment to build the necessary capacities to once again have a machine that generates again fine-tuned supply chains. In 2022, it is not expected that the necessary investments will be made to tune the machine again.

While this happens we must wait longer for our goods and once they arrive pay more than we paid last year.

Ideas taken from:

Fb.org “Inflation and the Supply Chain”

Labsnews.com “Inflation haunts Latin America’s growth 2022”.

Labsnews.com “Inflation haunts Latin America´s growth 2022”.