According to the new indicator from the Latin American Energy Organization (Olade), it reflects “a stage of stabilization” in energy prices “after the upward trend” that had been seen between 2021 and 2022.
Energy inflation in Latin America and the Caribbean was 1.96% in March 2024 compared to the same month last year, according to the new indicator from the Latin American Energy Organization (Olade).
Together with the Economic Commission for Latin America and the Caribbean, the organization will measure the variation in the Consumer Price Indices (CPI) of the energy basket of the countries in the region and the data will be published every month.
In the presentation of the new tool, Olade authorities explained that the fact that energy inflation in the region has been 1.96% annually reflects “a stage of stabilization” in energy prices in most of Latin American and Caribbean countries, “after the upward trend” that had been seen between 2021 and 2022.
The report presented the evolution of energy prices in Latin America and the Caribbean during the last two years, where strong inflation is observed until mid-2022, which at its highest peak reached 18.41%, and then a sustained decline with even negative values until September 2023.
During the presentation, the executive secretary of Olade, Andrés Rebolledo, attributed the strong inflation at the beginning of 2022 to the withdrawal of some subsidies applied by some countries in the region to energy during the time of the covid-19 pandemic and above all. all to the geopolitical consequences of Russia's invasion of Ukraine.
The subsequent decline with negative values such as -1.5% in July 2023 is due to a reactivation of the international trade logistics chain and greater hydrocarbon production, including within the same region of Latin America.
Immersed in these data are the heavy subsidies that some countries apply to energy and fuels, which influence the average data at the Latin American level to go down.
Two years of very volatile inflation
Rebolledo highlighted that these last two years "have been especially volatile, with many news that have impacted energy prices."
"In the future we have no way to predict energy inflation. The events are very dizzying and impact us significantly," he said.
Energy inflation in Latin America and OECD countries
The Olade study found that the maximum peak of energy inflation in the countries that are part of the Organization for Economic Cooperation and Development (OECD) was reached in June 2022, when an annual variation of 40.48 was recorded. % in the price index. "In fact, the percentage of the Gross Domestic Product (GDP) that was spent on final energy consumption in 2022 increased twice compared to 2021," they indicated.
Then, since June 2022, the pronounced drop in energy inflation in OECD countries is striking. This is due to the lower demand of 15% due to the economic slowdown of this group of countries and the effort to gradually eliminate the EU's dependence on fossil fuels and thus limit the volatility of gas and electricity prices; In fact, after this persistent decline, only in March 2024, OECD energy inflation was positive at 0.61%
In that sense, the executive secretary of Olade pointed out that Latin America cushioned the international escalation of energy much better than the group of OECD countries, the majority of which are in Europe and had to rebuild their energy sectors after Russia's invasion of Ukraine. , with increases in natural gas of more than 400%.
"One of the elements that gives us natural coverage and allows us to better face situations like those described has to do with the presence of the incorporation of renewable energies within the electricity generation matrix," said Rebolledo.
"65% of electricity generation is based on clean sources, and that is in some way an insurance, a natural coverage regarding this impact, and also because we are important producers of fuels such as oil and natural gas. We represent between 6% and 10% of world production," he added.
For Rebolledo, this is "a certain shield that allows us to face this type of international shocks with better resilience, particularly in prices, and the production of biofuels supports and contributes to this same logic."
More diversification and integration
However, the former Minister of Energy of Chile warned that in inflation "there is a fundamental part that depends on our own (national) policies and decisions that we make in regulatory matters in our electrical or energy sectors in general."
"We have an opportunity and also a challenge to be consistent in what we implement in our policies," he stressed.
As recommendations, Rebolledo pointed out that "a central key has to do with diversification" and with following as a region "the path of diversifying the matrix (of electricity generation) and incorporating renewable energies, which have competitive prices."
He also valued the importance of maintaining long-term supply contracts (10, 15 or 20 years), which "generates price stability over time and is covered with respect to short-term cycles), as well as strengthening integration electricity between countries to be more resilient in the face of electricity generation crises such as droughts in nations that depend heavily on hydroelectric plants.
