Caribbean & Central America - May 2007 (ISSN 1741-4458)

GUATEMALA: ECONOMIC OVERVIEW

Central America 16 May 2007 Modified: 16 May 2007 118 views

The 12 month inflation rate in April was 6.4%. Although the annual rate is falling, it is still well above the government's target for 2007. The government is aiming for an inflation rate of 5% in 2007. The target has a one percent margin either way.

The government is plying up the fact that the 12 month inflation rate has fallen from 7.02% in March. The April figure was something of an achievement given that petrol prices jumped 12.5%. Food prices are also rising worryingly: the food and drink subindex was up by 2.16% and tortilla prices were up by 2%.

The central bank raised interest rates in April and March by 0.25% in each month in an effort to puncture inflationary expectations. The central bank argues that monetary policy is having less effect on inflation than exogenous factors such as oil prices and the weather.

The president of the Junta Monetaria, María Antonieta de Bonilla, argues that the main inflation drivers are the international oil price and the price of maize. The third reason for inflation in the country, Bonilla says, is excessive liquidity.

Bonilla pointed out that since January 2005, the central bank has marched interest rates up to 5.5%. The steady rise in rates has not stopped banks lending. At the beginning of May 2007 bank lending was 27% higher than at the same period of 2006. Consumer loans were up by 53% at Q15.6bn (US$2.1bn). construction lending was up by a third (at Q7bn). Total lending was just over Q53bn.