Two Speeds Why the rest of Latin America disinflated and Bolivia did not
Between 2022 and 2025 almost every inflation-targeting economy in the region brought inflation back toward target. The exceptions tell you more about the framework than about the shock.
The view
Credible inflation targeters have earned room to cut faster than the Fed; fixed-rate regimes without reserves have not.
- Expression
- Long BRL vs USD to earn the carry while Brazil’s real rates stay high; avoid local assets in pegged regimes until they float.
- Horizon
- 6 months
- Conviction
- medium
Ways to express it
| Instrument | Why |
|---|---|
| USD/BRL spot (short) Chosen | Most liquid way to own the carry; the interest differential accrues while the view plays out. |
| Brazil DI futures (receive) Not chosen | The purest expression of rate cuts, but no free daily data to track it publicly and harder to size. |
| EWZ (Brazil equity ETF) Not chosen | Adds equity beta and commodity exposure that have little to do with the rates thesis. |
The 2021–22 inflation shock hit every economy in the region at roughly the same time: energy, food, supply chains and a strong dollar. What happened next depended on the framework each country brought to the fight.
The targeters went first, and hardest
Brazil, Chile, Colombia, Mexico and Peru all run inflation-targeting central banks with floating currencies. They began hiking before the Federal Reserve did, and by more. Real policy rates went deeply positive, currencies were allowed to absorb part of the shock, and inflation came down.Annual average inflation, so the 2025 numbers still carry some of the 2024 starting level.
- 2022
- 2025
View dataHide data
| Country | 2022 | 2025 |
|---|---|---|
| Bolivia | 1.7 | 19.5 |
| Colombia | 10.2 | 5.1 |
| Brazil | 9.3 | 5.0 |
| Chile | 11.6 | 4.2 |
| Paraguay | 9.8 | 4.0 |
| Mexico | 7.9 | 3.8 |
| Peru | 8.3 | 1.5 |
| Ecuador | 3.5 | 0.7 |
The exceptions
Two economies stand out for opposite reasons. Ecuador is dollarised, so it imports US monetary policy directly and its inflation tracks the US with a lag. Bolivia started 2022 with the lowest inflation on the chart and ended 2025 with the highest. The peg held down measured prices while reserves lasted, then stopped working when they ran out.
Where the dollar fits
None of this happens in isolation from Washington. The Fed sets the global price of money, and the dollar sets the price of almost everything Latin America imports. When the Fed eases, the region’s targeters get room to cut without their currencies weakening. When it does not, they have to keep real rates high to defend their currencies. Bolivia does not get that choice, which is the point.
What would make me wrong
A renewed dollar rally driven by a hawkish Fed would tighten financial conditions across the region at once and make the distinction between frameworks matter less than the common shock.
Calls from this note
Written September 21, 2026. Personal views, not investment advice. The calls on this site are hypothetical, with no money behind them.