ben s bernanke : inflation in latin america - a new era? remarks by mr ben s bernanke, member of the board of governors of the us federal reserve system, at the stanford institute for economic policy research economic summit, stanford, california, 11 february 2005. the references for the speech can be found on the board of governors of the federal reserve systema€™s website. * * * the federal reserve is justly proud of its success in reducing and stabilizing inflation in the united states. when paul volcker became fed chairman twenty - five years ago, americans were enduring double - digit inflation rates and subpar economic performance. under the leadership of volcker and, subsequently, alan greenspan, the federal open market committee took the actions necessary to bring the nation to price stability. in my view, the conquest of inflation has been a major source of the more - rapid economic growth and the greater stability of output and employment that the united states has enjoyed since the mid - 1980s ( bernanke, 2004 ). impressive as the fed's inflation - fighting accomplishments may be, however, inflation developments to our south, in latin america, may prove to be more impressive yet. for much of the latter half of the twentieth century, latin america experienced recurrent bouts of high inflation together with erratic growth and periods of economic and financial crisis. since the mid - 1990s, however, inflation rates in virtually all of latin america have come down dramatically, to the single digits in most cases. what explains this remarkable turnaround? will latin american progress on inflation be sustained, or is the recent improvement only a temporary lull? these are challenging questions of monetary economics and political economy, and their answers have important implications for the economic future of the western hemisphere - including the united states, which stands to benefit greatly from increased trade with and investment in a more prosperous latin america. in my remarks today i will offer some tentative answers to these questions, noting as always that the views i will express are not necessarily shared by my colleagues at the federal reserve. 1 the roots of latin american inflation for those of us here in the united states, acclimated as we have become to price stability, the severity of inflation in many latin american countries in recent decades may be difficult to comprehend. a measure of price changes in nine of the most populous latin american countries shows that inflation in the region averaged nearly 160 percent per year in the 1980s and 235 percent per year in the first half of

been about 6 - 1 / 2 percent on average in 2004 and is expected to be a bit lower than that in 2005 ( annual average basis ). if these projections are realized, and if the good performance of the u. s. and canadian economies continues, then the macroeconomic environment in our hemisphere as a whole will be better than it has been in many decades. will improved macroeconomic policies and outcomes continue in latin america? the track record is still too short to draw definitive conclusions. some writers have warned that the short - term costs of reform and overly optimistic projections by reform supporters may be leading to " reform fatigue " in a number of countries ( lora, panizza, and quispe - agnoli, 2003 ). i am inclined to be more optimistic, however. i am encouraged by the fact that governments of all ideological stripes, including left - leaning governments in brazil, argentina, and chile, as well as the incoming administration in uruguay, have actively supported reform. ( venezuela is a notable exception. ) in important ways, these efforts are paying off. notably, as i have discussed today, the inflation situation has improved markedly, and real interest rates have fallen. current account positions in the region have also strengthened considerably. on the other hand, although near - term growth prospects appear good, many latin american economies have grown at rates below their potential in recent years, in part as a result of the financial crises of the 1990s. much still needs to be done to alleviate income inequality and poverty. the next few years will be an interesting test of the efficacy and sustainability of economic reform in latin america.