## Navigating Tighter Global Financial Conditions (presentation — Sections 1–2)

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### Overview and timing
- Reflects developments and staff projections through September 26, 2022.
- Title: Navigating Tighter Global Financial Conditions
- Date on cover: NOVEMBER 2, 2022
- Roadmap sections: I.Recent Developments; II.Outlook: Shifting Global Winds; III.Risks; IV.Policy Priorities; V.Capacity Development

### Key messages and summary findings
- Regional performance and inflation
  - While US/Canada slowed in 2022H1, LAC’s recovery continued at a firm pace.
  - Broad-based inflationary pressures continued across the Western Hemisphere.
- External shock environment
  - Global winds are shifting with tightening of global financial conditions (the 3rd shock, after the pandemic and Russia’s invasion of Ukraine).
  - Capital flow reversals, falling commodity prices and lower global growth are emerging constraints.
- Outlook and risks
  - Outlook for LAC: Weaker growth and persistent inflation.
  - Risks are tilted to the downside. Main risks include:
    - tighter-than-anticipated financial conditions,
    - slower global growth,
    - more entrenched inflation,
    - lower commodity prices,
    - possibility of social unrest.
- Policy challenges
  - Near-term: restoring price stability, maintaining fiscal responsibility while protecting social cohesion (inclusive consolidation).
  - Medium term: rebuilding fiscal policy space and boosting potential growth.

### Recent developments — Advanced economies
- United States and Canada: monetary tightening amid high inflation.
- Charts/indicators referenced: Real GDP growth, Core PCE inflation, Fed Funds Target Rate (US); Real GDP growth, Core inflation, Target rate (Canada).
- Note: PCE = personal consumption expenditure.

### Recent developments — Latin America and the Caribbean (LAC)
- Growth and labor
  - LAC: firm but multi-speed recovery in 2022H1.
  - LA5: output in LA5 economies comfortably surpassing pre-pandemic levels, except in Mexico. (LA5 = Brazil, Chile, Colombia, Mexico, Peru.)
  - Rebound in activity supported by a strong recovery in employment despite stagnant real wages.
- External support and external sector
  - Robust demand from US and CAN supported merchandise exports growth (3m-moving sum; year-over-year percent change).
  - Commodity Terms of Trade (Percent change; index weighted by GDP) were favorable for the largest economies.
  - Remittances and Tourist Arrivals (Index: December 2019 = 100) remained strong; remittances deflated by US CPI include COL, DOM, SLV, GTM, HND, JAM, MEX, NIC.
- Financial conditions and credit
  - Resumption of credit, especially to households (Real Credit Growth and Financial Conditions Index).
  - Central banks in LA5 increased policy rates decisively, ahead of other EMs and AEs. (Latest data as of September 26, 2022.)
- Fiscal stance and energy/food measures
  - Fiscal policy remained mostly neutral in 2022; General Government Fiscal Impulse presented as percentage points of GDP for BR A CHL COL MEX PER LA5 LAC for 2020, 2021, 2022.
  - LAC: Existing Energy Subsidies in 2022 and New Announced Measures since January 2022 shown as Percent of GDP and Share of New Measures by Type (New Subsidies, Price caps, Tax cuts, Other; New Permanent vs Temporary; New Untargeted vs Targeted).
- Inflation dynamics
  - Inflation rose across all LAC subregions and LA5 economies, with some signs of deceleration in Brazil and Peru more recently.
  - Inflation drivers initially food and energy, increasingly the core.
  - LA5: Contributions to Headline Inflation and Producer Price Inflation (Year-over-year percent change).
  - LA5: Output Gap and Deviation of Inflation from the Target show closing output gaps partly reflecting rising core inflation.

### Regional highlights
- CAPDR (Central America, Panama, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama)
  - Synchronized rebound in 2021 and slowdown in early 2022; inflationary pressures rose across CAPDR economies.
  - Example CPI Inflation Rates reported: Aug-22 vs Dec-21 for PAN SLV DOM GTM HND CRI NIC with values including 2.1, 7.7, 8.8, 8.9, 10.4, 12.1, 12.1.
- Caribbean
  - Commodity exporters have grown rapidly; tourism-dependent economies are yet to reach pre-pandemic GDP levels.
  - Consumer Price Inflation (Year-over-year percent change) shows inflationary pressures across Caribbean countries (country labels include JAM BLZ BRB BHS LCA ATG DMA VCT GRD ABW KNA GUY TTO etc.).

### Outlook: Shifting global winds and financial tightening
- Tighter global financial conditions described as the 3rd shock.
- External financing costs and capital flows
  - LA5: Ten-Year Bond Yields and Exchange Rates — external financing costs are rising and domestic currencies are weakening (exchange rate increase = depreciation).
  - LA5: Balance of Payments and EPFR Net Flows (Billions of US dollars; four-quarter moving average) — portfolio outflows and reductions in BOP (portfolio) visible.
  - LA5: Sovereign and Corporate Eurobond Issuance (Billions of US dollars) — subdued primary bond market activity; data for 2022Q3 until September 26, 2022.
- Estimated impact of US monetary policy shock
  - Impulse response estimation based on a one percentage point increase in US 2-year bond yield shows effects one year later and largest impact within first three years for indicators (long-term local-currency yields, LC per USD, gross capital flow per GDP, real GDP one year later).
- Macroeconomic fundamentals that amplify/mitigate spillovers
  - Factors include current account balance (CAB), reserves, FX debt, public sector gross financing needs (GFN), central bank credibility (measured as inverse of sensitivity of LT inflation forecasts to inflation surprises).
  - Countries with weak current account balances, low reserves and public debt vulnerabilities are more exposed to shocks.

### Commodity prices and global growth
- Commodity Prices (Index: January 1, 2020 = 100): Oil, Copper, Iron ore, Soybeans, Aluminum — prices relevant for the region have fallen and are expected to soften further.
- Global Real GDP Growth (Year-over-year percent change): October 2022 WEO projections presented alongside January 2022 WEO and April 2022 WEO for 2021, 2022, 2023.

### Projections and regional outlook (selected numeric projections from WEO table; WEO data as of September 26, 2022)
- United States
  - Real GDP Growth: –3.4, 5.7, 1.6, 1.0
  - Inflation, end of period: 1.5, 7.4, 6.4, 2.3
- Canada
  - Real GDP Growth: –5.2, 4.5, 3.3, 1.5
  - Inflation, end of period: 0.7, 4.7, 6.9, 3.2
- Latin America and the Caribbean (LAC)
  - Real GDP Growth: –7.0, 6.9, 3.5, 1.7
  - Inflation, end of period: 6.3, 11.6, 14.6, 9.5
- LAC excluding Venezuela
  - Real GDP Growth: –6.6, 7.0, 3.4, 1.7
- South America
  - Real GDP Growth: –6.6, 7.3, 3.6, 1.6
  - Inflation, end of period: 8.0, 14.1, 18.0, 12.1
- CAPDR
  - Real GDP Growth: –7.1, 11.0, 4.7, 3.6
  - Inflation, end of period: 2.8, 5.1, 7.8, 4.4
- Caribbean Tourism Dependent
  - Real GDP Growth: –14.7, 7.8, 5.2, 3.6
  - Inflation, end of period: 2.5, 5.4, 8.3, 4.3
- Other (Caribbean)
  - Real GDP Growth: 1.3, 3.4, 16.7, 9.3
  - Inflation, end of period: 14.4, 11.7, 16.8, 9.0
- Commodity Exporters (of which)
  - Real GDP Growth: 4.0, 6.1, 24.6, 12.8
  - Inflation, end of period: 8.6, 11.0, 10.8, 6.8
- Memorandum items
  - LA5 — Real GDP Growth: –6.2, 6.3, 3.0, 1.2; Inflation, end of period: 3.5, 8.3, 7.8, 4.9
  - Brazil — Real GDP Growth: –3.9, 4.6, 2.8, 1.0; Inflation, end of period: 4.5, 10.1, 6.0, 4.7
  - Mexico — Real GDP Growth: –8.1, 4.8, 2.1, 1.2; Inflation, end of period: 3.2, 7.4, 8.5, 4.8

### Risks (summary)
- Risks are tilted to the downside and include:
  - tighter-than-anticipated global financial conditions,
  - slower global growth,
  - more entrenched inflation,
  - lower commodity prices,
  - potential social unrest from strained real incomes and fiscal consolidation measures.

### Policy priorities (Section 1 presentation)
- Near-term
  - Restore price stability through appropriate monetary tightening.
  - Maintain fiscal responsibility while protecting social cohesion (inclusive consolidation).
- Medium-term
  - Rebuild fiscal policy space.
  - Boost potential growth.
- Capacity development
  - Included in roadmap; specific CD items not detailed in Section 1.

---

### Growth outlook and output gap (Section 2)
- Growth trajectory and trend
  - LAC’s growth is expected to return to its (low) pre-pandemic rates.
  - Output levels remain below pre-pandemic trend.
  - Shortfall attributed mostly on the account of losses in productivity.
- Chart components referenced: LACEMDE, 2025–27 1980–2019, 2019–2027 Current vs Pre-pandemic; components: Total factor productivity, Labor, Capital stock, Real GDP.

### Risk: Tighter global financial conditions (Section 2)
- A broader tightening of financial conditions could materially increase the likelihood of severe outcomes.
- Growth-impact exercise
  - Distribution of aggregate LA5 growth based on quantile regression; shock = one standard deviation tightening in US financial conditions index.
  - Additional US tightening scenario assumptions:
    - interest rate for new debt increases by the by the additional Fed tightening of 0.6 and 1.4 percentage points in 2023 and 2024, respectively,
    - plus 50 basis points risk premium in 2023–24.
  - Exercise abstracts from growth and exchange rate effects, which are likely to worsen debt dynamics.
- Impacts highlighted
  - worsen an already-fragile public debt dynamics in LA5,
  - potentially stress some private debt markets.
- Definitions and aggregation notes
  - LA5 = Brazil, Chile, Colombia, Mexico, Peru;
  - EMDE = emerging and developing economies excluding China;
  - Aggregates are US dollar nominal GDP-weighted averages.

### Risk: High inflation becoming entrenched (Section 2)
- Inflation has become more backwards-looking, raising the risk of entrenchment.
- Nominal wages are accelerating.
- The magnitude of the current inflationary shock points to a protracted path back to the target.
- Evidence and indicators
  - LA5: Inflation Coefficients from Rolling Phillips Curve Estimates.
  - Inflation episodes identified as periods with y-o-y inflation above central banks’ tolerance bands (1pp. above target for Chile); comparisons of past episodes (blue dots) and expected current episode (green dots) based on October 2022 WEO projections.
  - Inflation expectations: survey-based measures point to well-anchored LT inflation expectations but ST expectations have risen.
  - Brazil inflation target is set to decline over time from 3.5 percent in 2022 to 3 percent in 2025. Chile does not have tolerance bands; midpoint target is shown.

### Risk: Social unrest (Section 2)
- Drivers and indicators
  - Pandemic and high commodity prices have exacerbated food insecurity; inequality and poverty remain elevated.
  - This raises the risk of social unrest, particularly if food and energy costs remain high.
  - Indicators referenced: Poverty (US$5.5 threshold), Food Insecurity (prevalence of moderate or severe), Gini (SWIID-based estimates for 2021).
  - Correlations shown visually:
    - Correlation Jan-13–Dec-19 = 0.76
    - Correlation Jan-21–Jan-22 = 0.89
  - LAC: Fraction of Countries with Major Unrest Events and Commodity Inflation (Percent); 12-mma = 12-month moving average.

### Policy priorities (Section 2)
- Short term: Restoring price stability while preserving social cohesion
  - Monetary policy
    - Bring inflation back to target range over horizon of monetary policy (do not ease prematurely; communicate policy intentions clearly).
  - Exchange rate and reserves
    - Allow ERs to operate as shock absorber against external financial condition shocks, while using FXI to address disorderly market conditions. Where needed, explore boosting reserve buffers.
  - Financial sector policies
    - Monitor closely the evolution of NPLs, and balance sheets of non-financial corporates as financial conditions tighten.
    - Strengthen supervision/regulation of non-bank financial corporations.
  - Fiscal policy
    - Protect the most vulnerable throughout the period of high inflation & weaker activity, while maintaining a neutral/contractionary fiscal stance to support monetary policy and debt sustainability.
- Medium term: rebuilding fiscal policy space and boosting potential growth
  - Structural policies
    - Remove structural impediments to productivity and investment to boost potential growth.
  - Fiscal policy
    - “Inclusive consolidation” to ensure debt sustainability and social stability.

*IMF | Western Hemisphere Department - Regional Economic Outlook — presentation (Sections 1–2), materials through September 26, 2022.*

### Section 1

### presentation - Section 1

### Overview and timing
- This presentation reflects developments and staff projections through September 26, 2022.
- Title: Navigating Tighter Global Financial Conditions
- Date on cover: NOVEMBER 2, 2022
- Roadmap sections: I.Recent Developments; II.Outlook: Shifting Global Winds; III.Risks; IV.Policy Priorities; V.Capacity Development

### Key messages
- While US/Canada slowed in 2022H1, LAC’s recovery continued at a firm pace.
- Broad-based inflationary pressures continued across the Western Hemisphere.
- Global winds are shifting with tightening of global financial conditions (the 3rd shock, after the pandemic and Russia’s invasion of Ukraine).
- Capital flow reversals, falling commodity prices and lower global growth are emerging constraints.
- Outlook for LAC: Weaker growth and persistent inflation.
- Risks are tilted to the downside, with main risks stemming from:
  - tighter-than-anticipated financial conditions,
  - slower global growth,
  - more entrenched inflation,
  - lower commodity prices,
  - possibility of social unrest.
- Policy challenges:
  - Near-term: restoring price stability, maintaining fiscal responsibility while protecting social cohesion (inclusive consolidation).
  - Medium term: rebuilding fiscal policy space and boosting potential growth.

### Recent developments — Advanced economies
- United States and Canada: monetary tightening amid high inflation.
- Charts and indicators shown: Real GDP growth, Core PCE inflation, Fed Funds Target Rate (US); Real GDP growth, Core inflation, Target rate (Canada).
- Note: PCE = personal consumption expenditure.

### Recent developments — Latin America and the Caribbean (LAC)
- LAC: firm but multi-speed recovery in 2022H1.
  - LAC: Real GDP Level (Index: 2019 = 100) and LA5: Real GDP Level (Index: 2019Q4 = 100) indicate output in LA5 economies comfortably surpassing pre-pandemic levels, except in Mexico.
  - LA5 = Brazil, Chile, Colombia, Mexico, Peru.
- External support for growth:
  - Contributions to Merchandise Exports Growth (3m-moving sum; year-over-year percent change) show robust demand from US and CAN.
  - Commodity Terms of Trade (Percent change; index weighted by GDP) were favorable for the largest economies.
  - Remittances and Tourist Arrivals (Index: December 2019 = 100) remained strong; remittances deflated by US CPI include COL, DOM, SLV, GTM, HND, JAM, MEX, NIC.
- Domestic factors:
  - LA5: Real Wage, Employment, and Activity (Index: January 2020 = 100) — rebound in activity supported by a strong recovery in employment despite stagnant real wages.
  - LA5: Real Credit Growth and Financial Conditions Index — resumption of credit, especially to households.
- Fiscal stance and energy/food measures:
  - Fiscal policy remained mostly neutral in 2022; General Government Fiscal Impulse presented as percentage points of GDP (+/– = loosening/tightening) for BR A CHL COL MEX PER LA5 LAC for 2020, 2021, 2022.
  - LAC: Existing Energy Subsidies in 2022 and New Announced Measures since January 2022 shown as Percent of GDP and Share of New Measures by Type, percent (New Subsidies, Price caps, Tax cuts, Other; New Permanent vs Temporary; New Untargeted vs Targeted).
- Monetary policy:
  - Policy Rates (Percent) and Ex-Ante Real Monetary Policy Rates (Percent) — central banks in LA5 increased policy rates decisively, ahead of other EMs and AEs.
  - Latest data as of September 26, 2022.
- Inflation dynamics:
  - Inflation rose across all LAC subregions and LA5 economies, with some signs of deceleration in Brazil and Peru more recently.
  - LA5: Headline Consumer Price Inflation (Year-over-year percent change) and LAC: Headline Consumer Price Inflation (Quarterly average; year-over-year percent change) show elevated inflation.
  - Inflation drivers: initially food and energy, increasingly the core; LA5: Contributions to Headline Inflation and Producer Price Inflation (Year-over-year percent change).
  - LA5: Output Gap and Deviation of Inflation from the Target show closing output gaps partly reflecting rising core inflation.

### Regional highlights
- CAPDR (Central America, Panama, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama): synchronized rebound in 2021 and slowdown in early 2022; inflationary pressures rose across CAPDR economies. Example CPI Inflation Rates reported: Aug-22 vs Dec-21 for PAN SLV DOM GTM HND CRI NIC with values including 2.1, 7.7, 8.8, 8.9, 10.4, 12.1, 12.1 (presented in slide).
- Caribbean:
  - Real GDP Level (Index: 2019 = 100): Commodity exporters have grown rapidly; tourism-dependent economies are yet to reach pre-pandemic GDP levels.
  - Consumer Price Inflation (Year-over-year percent change) shows inflationary pressures across Caribbean countries. Country list in chart includes JAM BLZ BRB BHS LCA ATG DMA VCT GRD ABW KNA GUY TTO etc.

### Outlook: Shifting global winds and financial tightening
- Tighter global financial conditions described as the 3rd shock.
- LA5: Ten-Year Bond Yields and Exchange Rates — external financing costs are rising and domestic currencies are weakening (exchange rate increase = depreciation).
- LA5: Balance of Payments and EPFR Net Flows (Billions of US dollars; four-quarter moving average) — portfolio outflows and reductions in BOP (portfolio) visible.
- LA5: Sovereign and Corporate Eurobond Issuance (Billions of US dollars) — subdued primary bond market activity; data for 2022Q3 until September 26, 2022.
- Impact of US monetary policy shock:
  - Impulse response estimation based on a one percentage point increase in US 2-year bond yield shows effects one year later and largest impact within first three years for various indicators (long-term local-currency yields, LC per USD, gross capital flow per GDP, real GDP one year later).
- Macroeconomic fundamentals that amplify/mitigate financial spillovers:
  - Factors include current account balance (CAB), reserves, FX debt, public sector gross financing needs (GFN), central bank credibility (measured as inverse of sensitivity of LT inflation forecasts to inflation surprises).
  - Countries with weak current account balances, low reserves and public debt vulnerabilities are more exposed to shocks.

### Commodity prices and global growth
- Commodity Prices (Index: January 1, 2020 = 100): Oil, Copper, Iron ore, Soybeans, Aluminum — prices that are relevant for the region have fallen and are expected to soften further.
- Global Real GDP Growth (Year-over-year percent change): October 2022 WEO projections presented alongside January 2022 WEO and April 2022 WEO for 2021, 2022, 2023 (series labeled 2021 2022 2023 with projection lines).

### Projections and regional outlook (selected numeric projections from WEO table, WEO data as of September 26, 2022)
- Real GDP Growth (projections shown for 2020, 2021, 2022, 2023) and Inflation, end of period (projections for 2020, 2021, 2022, 2023). Selected entries from the regional table:
  - United States — Real GDP Growth: –3.4, 5.7, 1.6, 1.0; Inflation, end of period: 1.5, 7.4, 6.4, 2.3
  - Canada — Real GDP Growth: –5.2, 4.5, 3.3, 1.5; Inflation, end of period: 0.7, 4.7, 6.9, 3.2
  - Latin America and the Caribbean (LAC) — Real GDP Growth: –7.0, 6.9, 3.5, 1.7; Inflation, end of period: 6.3, 11.6, 14.6, 9.5
  - LAC excluding Venezuela — Real GDP Growth: –6.6, 7.0, 3.4, 1.7 (inflation values omitted in source table excerpt)
  - South America — Real GDP Growth: –6.6, 7.3, 3.6, 1.6; Inflation, end of period: 8.0, 14.1, 18.0, 12.1
  - CAPDR — Real GDP Growth: –7.1, 11.0, 4.7, 3.6; Inflation, end of period: 2.8, 5.1, 7.8, 4.4
  - Caribbean Tourism Dependent — Real GDP Growth: –14.7, 7.8, 5.2, 3.6; Inflation, end of period: 2.5, 5.4, 8.3, 4.3
  - Other (Caribbean) — Real GDP Growth: 1.3, 3.4, 16.7, 9.3; Inflation, end of period: 14.4, 11.7, 16.8, 9.0
  - Commodity Exporters (of which) — Real GDP Growth: 4.0, 6.1, 24.6, 12.8; Inflation, end of period: 8.6, 11.0, 10.8, 6.8
  - Memorandum items:
    - LA5 — Real GDP Growth: –6.2, 6.3, 3.0, 1.2; Inflation, end of period: 3.5, 8.3, 7.8, 4.9
    - Brazil — Real GDP Growth: –3.9, 4.6, 2.8, 1.0; Inflation, end of period: 4.5, 10.1, 6.0, 4.7
    - Mexico — Real GDP Growth: –8.1, 4.8, 2.1, 1.2; Inflation, end of period: 3.2, 7.4, 8.5, 4.8

### Risks
- Risks are tilted to the downside and include:
  - tighter-than-anticipated global financial conditions,
  - slower global growth,
  - more entrenched inflation,
  - lower commodity prices,
  - potential social unrest from strained real incomes and fiscal consolidation measures.

### Policy priorities (as presented)
- Near-term:
  - Restore price stability through appropriate monetary tightening.
  - Maintain fiscal responsibility while protecting social cohesion (inclusive consolidation).
- Medium-term:
  - Rebuild fiscal policy space.
  - Boost potential growth.
- Capacity development: included in roadmap but specific CD items not detailed in this section.

*IMF | Western Hemisphere Department - Regional Economic Outlook — presentation (Section 1), materials through September 26, 2022.*

### Section 2

### presentation - Section 2

### Growth outlook and output gap
- LAC’s growth is expected to return to its (low) pre-pandemic rates.
- Output levels remain below pre-pandemic trend.
- Shortfall attributed mostly on the account of losses in productivity.
- Chart labels and series referenced: LACEMDE, 2025–27 1980–2019, 2019–2027 Current vs Pre-pandemic; components: Total factor productivity, Labor, Capital stock, Real GDP.

### Risk: Tighter global financial conditions
- A broader tightening of financial conditions could materially increase the likelihood of severe outcomes.
- Growth impact exercise: distribution of aggregate LA5 growth, based on quantile regression; shock is one standard deviation tightening in US financial conditions index; blue line = distribution of 3-quarter ahead GDP growth based on historical data; red line = estimated cumulative percent change in GDP from the quarter prior to the shock, up to two quarters after the shock at different deciles of GDP growth’s distribution; shaded areas show tail outcomes with 5 percent probability.
- Additional US tightening scenario assumptions:
  - interest rate for new debt increases by the by the additional Fed tightening of 0.6 and 1.4 percentage points in 2023 and 2024, respectively,
  - plus 50 basis points risk premium in 2023–24.
  - The exercise abstracts from growth and exchange rate effects, which are likely to worsen debt dynamics.
- Impacts highlighted:
  - worsen an already-fragile public debt dynamics in LA5,
  - potentially stress some private debt markets.
- Definitions and aggregates:
  - LA5 = Brazil, Chile, Colombia, Mexico, Peru;
  - EMDE = emerging and developing economies excluding China;
  - Aggregates are US dollar nominal GDP-weighted averages.
- Debt series and comparisons referenced: Gross Public Debt (Percent of GDP); Private Sector Debt (Percent of GDP); LA4 corporate and household debt from banks; LA4 corporate and household debt; EMDE corporate and household debt.
- Years and scenarios cited visually: 2019, 2024 (baseline), 2024 (additional US tightening).

### Risk: High inflation becoming entrenched
- Inflation dynamics have become more backwards-looking, raising the risk of entrenchment.
- Nominal wages are accelerating.
- The magnitude of the current inflationary shock points to a protracted path back to the target.
- LA5: Inflation Coefficients from Rolling Phillips Curve Estimates and LA5: Inflation and Nominal Wages Growth presented (LA5 = Brazil, Chile, Colombia, Mexico, Peru).
- Inflation episodes analysis:
  - Episodes identified as periods (in months) with y-o-y inflation above the central banks’ tolerance bands—1pp. above target for Chile. Blue dots: completed past episodes since 2000. Green dots: expected for current episode based on October 2022 WEO projections.
  - Time-above-tolerance-band and maximum distance from tolerance band shown; past episodes vs current projected full episode.
- Inflation expectations:
  - Survey-based measures point to well-anchored LT inflation expectations...
  - ... but ST expectations have risen.
  - Measures and notes:
    - Breakeven inflation computed using difference in yields between regular bonds and inflation-indexed bonds of the same maturity.
    - Short term: Consensus forecasts: one-year ahead; Breakeven: one-year.
    - Long term: Consensus forecasts: five-year ahead.
    - Brazil inflation target is set to decline over time from 3.5 percent in 2022 to 3 percent in 2025. Chile does not have tolerance bands; midpoint target is shown.
  - Revisions in Inflation Expectations, 2022 shown for Chile, Colombia, Brazil, Mexico, Peru with series: Consensus (short term), Consensus (long term), Breakeven (short term).
  - Comparisons shown: Target range (2022); Headline (August 2022); End-2023 expectations (September 2022); End-2024 expectations (July 2022).

### Risk: Social unrest
- The pandemic and high commodity prices have exacerbated food insecurity, while inequality and poverty remains elevated.
- This raises the risk of social unrest, particularly if food and energy costs remain high.
- Indicators and notes:
  - LAC: Poverty, Food Insecurity, and Gini (Left scale: percent of population; Right scale: index). Poverty is based on US$5.5 threshold. Food insecurity refers to prevalence of moderate or severe. Gini data for 2021 estimated using available LAC countries in SWIID. LAC sample is based on source and data availability.
  - LAC: Fraction of Countries with Major Unrest Events and Commodity Inflation (Percent). Note: 12-mma = 12-month moving average.
  - Correlations reported visually:
    - Correlation Jan-13–Dec-19 = 0.76
    - Correlation Jan-21–Jan-22 = 0.89

### Policy priorities
- Short term: Restoring price stability while preserving social cohesion
  - Monetary policy – bring inflation back to target range over horizon of monetary policy (do not ease prematurely; communicate policy intentions clearly)
  - Allow ERs to operate as shock absorber against external financial condition shocks, while using FXI to address disorderly market conditions. Where needed, explore boosting reserve buffers.
  - Financial sector policies – monitor closely the evolution of NPLs, and balance sheets of non-financial corporates as financial conditions tighten. Strengthen supervision/regulation of non-bank financial corporations.
  - Fiscal policy – protect the most vulnerable throughout the period of high inflation & weaker activity, while maintaining a neutral/contractionary fiscal stance to support monetary policy and debt sustainability.
- Medium term: rebuilding fiscal policy space and boosting potential growth
  - Structural policies – Remove structural impediments to productivity and investment to boost potential growth.
  - Fiscal policy – “Inclusive consolidation” to ensure debt sustainability and social stability.

*IMF | Western Hemisphere Department -Regional Economic Outlook (presentation - Section 2)*

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_Source: https://www.imf.org/-/media/files/publications/reo/whd/2022/october-2022/english/presentation.pdf_