The Impact of Inflation on Latin American & Caribbean Site Selection

by King White, on Aug 14, 2023 11:00:00 AM

Evaluating the impact of inflation on site selection decisions is extremely important when navigating onshore and offshore geographies. By far, labor costs have the most impact. Labor costs impact all project types ranging from office sector functions such as call centers and shared service centers to industrial operations such as manufacturing plants. To help evaluate the latest inflation trends in the Latin America and Caribbean (LACA) region, Site Selection Group evaluated inflation over the last year to help identify which countries have been impacted the most.

Difficult labor conditions created by the battle for talent 

Rising wages have challenged many employers. Most companies have increased employee compensation significantly within the last 12 to 24 months amid tightening labor markets caused by intense competition for workers as the COVID-19 pandemic waned. There has been an influx of companies expanding in the LACA region, especially in the call center and back-office sector in the last few years. The current labor environment has been labeled an “employee market,” meaning employers must adjust wages to successfully hire and retain employees.  

Inflation's impact on the cost of living

Inflation can also push up wages.  When the cost of goods and services increases, employers feel compelled to boost wages accordingly to allow their employees to afford the rise in the cost of living. Although inflation has been felt in many cities and countries across the globe, LACA has experienced some of the highest inflation in the world. A sign of encouragement is many countries within this region have seen a decrease in inflation since last year and future trends indicate a continued decrease in inflation. This is good news for many companies, especially U.S.-based companies, that look to LACA as a nearshore alternative to the U.S. which is roughly 50% more expensive to operate in.  

Lowest inflation rates and the greatest decrease in inflation by country 

Site Selection Group evaluated the LACA region and identified countries with the lowest inflation rates, the countries with the greatest decline in inflation within the last year, and countries with the lowest projected inflation rates by 2024.  The following tables summarize the rankings:

Top 15 Countries with the Lowest Inflation Rate

Inflation Rate
(July 2023)
Panama 0.42
Costa Rica 0.90
Ecuador 1.69
Guyana 1.90
Bolivia 2.73
Brazil 3.16
Belize 3.70
El Salvador 3.78
Aruba 4.00
Dominican Republic 4.00
Paraguay 4.20
Guatemala 4.93
Mexico 5.06
Barbados 5.50
Honduras 5.60


Top 15 Countries with Greatest Decline in Inflation from July 2022 - July 2023

Inflation Rate
(July 2022)
Inflation Rate
(July 2023)
Inflation Rate Change
(July 2022 to July 2023)
Costa Rica 11.48 0.90 -10.58
Brazil 10.07 3.16 -6.91
Paraguay 11.10 4.20 -6.90
Chile 13.10 7.60 -5.50
Dominican Republic 9.43 4.00 -5.43
Honduras 10.86 5.60 -5.26
Jamaica 10.20 6.20 -4.00
Guyana 5.73 1.90 -3.83
El Salvador 7.42 3.78 -3.64
Belize 7.30 3.70 -3.60
Uruguay 9.56 5.98 -3.58
Guatemala 8.36 4.93 -3.43
Mexico 8.15 5.06 -3.09
Panama 3.51 0.42 -3.09
Peru 8.74 6.46 -2.28


Top 15 Countries with Lowest Projected Inflation 

Projected Inflation Rate (2024)
Bolivia 1.80
Panama 2.00
El Salvador 2.00
Paraguay 2.00
Peru 2.00
Bahamas 2.10
Aruba 2.80
Costa Rica 3.00
Ecuador 3.00
Dominican Republic 3.00
Guatemala 3.00
Trinidad and Tobago 3.00
Belize 3.20
Jamaica 3.80
Mexico 4.00

Source:  Trading Economics




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