It is no secret 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 price increases to serve their supply chain.
The main monetary policy tool that the governments of these countries will have to use to control higher inflation will be to increase interest rates, which will have an effect on liquidity and make credit more expensive. The situation is exacerbated when the margin of additional indebtedness of these countries is already at over-indebtedness levels. Against this backdrop, it is important to understand what implications this has for companies.
The "just in time" breakup
In 2019 the economy was running like a fine-tuned machine. Manufacturers, farmers, restaurants and retailers were confident that their supply would arrive "just in time". They got what they needed, when they needed it; which kept inventory costs low and made moving economic dynamics as efficient as possible.
During 2020, changes in demand generated imbalances in the economy. We all remember the excessive purchase of toilet paper and milk. This caused companies to have the wrong portfolio of products in their inventory to meet a new demand. The fine-tuned machine was unadjusted.
The same logistics experts who for many decades promulgated "just in time" now unhesitatingly promulgate that production should consider overproduction "just in case". The demand for some goods has also broken its natural equilibrium, causing people to buy goods in anticipation of their need, which has led to price increases and shortages in many areas.
On the other hand, many companies are not in a hurry to make major investments to increase installed capacity, because the uncertainty of demand behavior in the medium and long term is still high. Many producers are not in a hurry to build more installed capacity because they see this phenomenon as temporary.
This new uncertainty in the supply chain has reset the inventory cycle for 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. It is a reconfiguration of the details of supply and demand. The shortages generated in some goods stem from these changes and these shortages have cascading impacts on many supply chains in our productive economy.
The pandemic has brought us price increases, coming from a fine-tuned machine from 2019, isolation in 2020 and chaotic recovery in 2021. It will take time and investment to build the necessary capabilities to get back to having a machine that generates tuned supply chains again. In 2022 it is not expected that the necessary investments will be made to retune the machine.
While this is happening we must wait longer for our goods and once they arrive pay more than we did last year.
Ideas taken from:
Fb.org "Inflation and the Supply Chain".
Labsnews.com "Inflation haunts Latin America's growth 2022".
