Inflation risks are building in all Latin American countries except Mexico, where price gains are low and economic expansion should outpace Brazil this year, according to the the International Monetary Fund World Economic Outlook.
Consumer price inflation across Latin American and the Caribbean would likely accelerate to 6.7% this year from 6.0% in 2010, before slowing again in 2012, says the report.
The generally buoyant conditions are associated with rising inflation in South and Central America. On the other hand, Mexico is not facing overheating pressure at this time.
Price pressures in the fast-growing region should be partly anchored by Mexico, where annual inflation should slow from around 4.2% last year to 3.6% in 2011 and 3.1% 2012, says IMF.
Fuelled by higher commodity prices, inflation pressure is expected to build across many of the major South American economies this year. Paraguay, Bolivia, Uruguay and Chile would all see a significant jump in the annual rate, the IMF predicted.
Central banks in South America have been tightening interest rates in recent months to battle the rising price pressures, with Brazil's main lending rate at 11.75%. And as a result, many economies are expected to slow.
Growth in the Latin America-Caribbean region would likely ease from just over 6% in 2010 to around 4.75% this year and 4.25% the following year, the IMF said.
The outlook for commodity exporters is generally positive. There are signs, however, of potential overheating, and capital inflows have caused policy tension the IMF said.
For example, real credit growth in Brazil and Colombia is increasing by 10 to 20% a year according to the most recent data. Furthermore, per capita credit in Brazil roughly doubled over the past five years.
However the inflation outlook in Mexico is benign, pointing out that Mexican output is appreciably below pre-crisis levels, just as in Russia and Turkey.
Projections suggest that much of the output lost relative to 1997-2006 trends has been lost permanently and therefore point to much smaller negative or closing output gaps, it said, though it revised up Mexico's growth forecast for 2011.
GDP in Latin America's second-biggest economy should expand by 4.6% while in Brazil the biggest economy, GDP would expand by about 4.5%, down from 7.5% last year.
The IMF new forecast for Mexico was 0.4 percentage point better than the IMF had expected in a Jan. 25 estimate and 0.7 percentage points higher than in the last WEO in October.
Nevertheless, the fund noted Mexico's fortunes would remain closely tied to developments in the United States, the market for about 85% of its exports.
The IMF latest prediction follows a Mexican Finance Ministry announcement that 2011 growth could even outpace a 10-year high of 5.5% scaled last year. Policymakers have been increasingly upbeat in recent weeks.
The IMF forecast the unemployment rate in Mexico would decrease from an average of 5.4% last year to 4.5% this year and 3.9% in 2012.
However economic growth in the country is seen slowing to 4.0% next year.