Grupo Cibest expects inflation in El Salvador to begin moderating from mid-2027

Grupo Cibest projects that inflation in El Salvador will begin to moderate next year. /(Illustrative Image Infobae)The price outlook in El Salvador will maintain pressures over the coming months, although the economic research team at Grupo Cibest projects that inflation will begin to moderate from mid-2027, once external factors linked to energy costs and weather conditions dissipate. The forecast was presented by Laura Clavijo, director of Economic, Sectoral and Market Research at Grupo Cibest, during a regional presentation on the outlook for Latin America. The economist noted that price behavior will depend, to a large extent, on the evolution of the conflict in the Middle East and the impact of the El Niño phenomenon on agricultural production. "Inflation begins to ease next year, once the worst of the El Niño phenomenon passes, which will be around between late 2026 and early 2027," Clavijo said. The estimate also considers a possible de-escalation in the Middle East during the second quarter of next year. The rise in oil is one of the factors receiving the most attention for Central American economies. Clavijo explained that international crude prices approached USD 108 per barrel, following a new escalation of tensions in the Middle East and a reduction in available inventories. Central banks use interest rate increases to make financing more expensive and regulate household spending. /(Illustrative Image Infobae) The increase has effects on transportation, fuels and production costs. It can also make fertilizers and other inputs more expensive, with an impact on food prices. "Inflation does hit everyone. People feel the pain in their pockets," the analyst said. During her remarks, Clavijo stated that diesel reached values higher than those recorded in 2022, when the Russian invasion of Ukraine triggered a global surge in commodities. The persistence of high energy costs can be passed through to goods and services consumed by households. Grupo Cibest's analysis starts from the premise that the current shock has an external origin. Under that reading, a reduction of the conflict would ease pressure on fuel markets and on the cost chain that reaches the region's economies. Energy tensions are compounded by climate risk. Grupo Cibest's director of Economic Research warned that the El Niño phenomenon can cause droughts in part of Central America, with consequences for crops and food prices. The international rise in oil increases transportation, fuel and fertilizer costs for food production. /(DCA) "For countries such as those in Central America and Colombia, it means inflation pressure due to the impact on crops, products, and the increase in their prices," she noted. Weather conditions could also affect the energy sector if they reduce the availability of resources for electricity generation, which would have effects on public utility rates. Clavijo placed the period of greatest climate pressure between the end of 2026 and the first months of 2027. That combination of factors could delay relief in the cost of living, even though regional inflation levels remain below those observed during the post-pandemic period. The economist indicated that Central American economies retain a macroeconomic base that allows them to face these cycles. The challenge, she explained, lies in applying policies that contain price pressures without abruptly affecting productive activity. Inflation also conditions central banks' decisions. Clavijo explained that interest rates function as a mechanism to regulate liquidity: when they rise, financing becomes more expensive and the incentive to purchase goods on credit decreases. The economies of Central America retain a macroeconomic structure that allows them to cushion external price shocks. /(Illustrative Image Infobae) The effect is usually concentrated in the purchase of vehicles, homes and other durable goods. "Higher interest rates should have that effect of tempering and mitigating consumption dynamics," she said. The analyst recalled that the United States Federal Reserve raised its benchmark rate by 25 basis points in September. Although El Salvador does not have its own monetary policy due to its dollarization scheme, US financial conditions affect the cost of credit and the country's investment decisions.