MercoPress. South Atlantic News Agency

Inflation once again brings on increase in poverty throghout Paraguay

Future increases in the reference interest rate by the BCP are on the radar

Analysts foresee official data for the year 2021 will show an increase in poverty for the second straight year in Paraguay and will reach almost 30% due mainly to increasing inflation, analysts said Tuesday.

According to a study released this week in an event called Basanomics, total poverty in Paraguay could rise from 26.9% in 2020 to 29.2% by the end of this year; a 2.3% growth.

Based on these figures, poverty could be affecting one third of the country's population after two years of the COVID-19 pandemic. It would be the highest figure in the last eight years, in terms of percentages.

Former Finance Minister Santiago Peña presented the group's calculations and explained inflation would be the main cause for the setback, even worse than the suspension of monetary aid granted in 2020. Peña also stressed there were also various factors at play: the recovery of economic activity, expansionary monetary policy, deficit fiscal policy and the price of raw materials.

Basanomics foresees inflation above 7% this year, which is very high for Paraguayan standards.

Lea Giménez, also a former finance minister, added that high inflation was expected to continue in the coming months. According to official data, 2021 accumulated inflation by November stood at 6.8%, while yoy inflation was 7.4%.

Regarding the Central Bank (BCP)'s monetary policy Peña believed it was still below 2015-2018 figures, which means future increases in the reference interest rate are on the radar as a key tool to control inflation.

Former BCP Chairman Carlos Fernández Valdovinos said Paraguay's gross domestic product (GDP) will show signs of stagnation despite an overall rebound in the country's economy. This issue may impact expansion in 2022, he explained.

Basanomics estimates that this year the economy would grow around 5% and that next year it will expand around 4%, thanks to agricultural output, particularly that of soybeans.
Basanomics is an economy forum hosted by Banco Basa at Asunción's Sheraton Hotel this week.