In an International Monetary Fund blog drawing on a departmental paper, IMF staff argue that Latin America’s well-anchored inflation expectations should help cushion the latest oil price shock linked to conflict in the Middle East. The study finds that, in most countries in the region, post-pandemic supply shocks lifted near-term inflation without pushing up long-term inflation expectations, which reduces the pass-through from higher energy and other commodity import prices to consumer prices. The paper says stronger anchoring materially lowers the inflationary effect of terms-of-trade shocks in emerging markets and gives policymakers more room to manage trade-offs as oil prices rise. It attributes Latin America’s progress to reforms over roughly the past 25 years, including inflation targeting, stronger central bank independence and the end of fiscal dominance. Case studies including Brazil, Chile and Argentina also show that credibility remains fragile. Tighter-than-expected monetary policy improves anchoring only modestly and with a lag, while unexpectedly loose policy can weaken expectations more sharply. The authors add that the choice of monetary regime depends on context, that inflation targeting can still work when introduced under difficult conditions if transparency and accountability are strong, and that fiscal support and low dollarization are important for disinflation.
International Monetary Fund2026-05-26
International Monetary Fund research finds anchored inflation expectations help Latin America absorb oil price shocks
IMF staff, drawing on a departmental paper, find that Latin America’s well‑anchored inflation expectations should help cushion the latest oil price shock from Middle East conflict by limiting pass‑through from higher import to consumer prices. The paper credits reforms over the past 25 years—especially inflation targeting, greater central bank independence, and reduced fiscal dominance—but warns credibility is fragile and that loose monetary policy can erode expectations more than tight policy strengthens them. It concludes that regime choice is context‑dependent, that inflation targeting can work under difficult conditions with strong transparency and accountability, and that fiscal support and low dollarization are important for disinflation.