Main Messages
Chapter 1. Continued Recovery Amidst New Challenges
The region continues to make progress reducing inflation although the convergence to the inflation targets has slowed, largely due to increased labor costs pushing up the prices of services and continued increases in international food prices. Inflation expectations remain anchored as all major countries expect to hit their targets by 2026 and monetary policies continue to ease; both nominal and real rates have begun to fall, except for Brazil’s. In the Caribbean, because many currencies are broadly pegged, the initial inflation shock was more modest and manageable, while both the Dominican Republic and Jamaica’s targeting regimes have led to more inflation and slower reductions.
Progress on poverty reduction continues to advance, albeit at a slower pace. Estimates for 2024 indicate that monetary poverty is expected to decrease marginally to 24.4 percent of LAC’s population from 25.0 percent in 2023 (based on an upper-middle-income poverty line of $6.85 per day in 2017 purchasing power parity terms), while inequality is expected to remain high by global standards, with a Gini coefficient of 49.9 percent. About 65 percent of the improvement in poverty from 2018 to 2023 was driven by a combination of transfers and stronger labor markets, in particular higher inflation-adjusted earnings.
Though raising minimum wages from very low levels can increase wages and lower poverty, the long-term solution to social progress is to promote growth in the number of modern sector high-productivity jobs. Two shifts in the global economy, the emergence of artificial intelligence (AI) and the evolution of the green economy, both offer challenges and opportunities to creating such jobs.
