Much of Latin America's economic success is built on profits from a commodities boom that is having the foreseen side effect of pushing fuel, food and other consumer prices in the Caribbean, Central and South American region, as elsewhere in the world.

With sharp credit rating drops in the Middle East and flight of huge investments from that region, Latin America's exporting nations fear the worst, summed up by experts as the double whammy of overvalued local currencies and declining demand from shrinking economies.

Heads of central banks from the member countries of the Mercosur trade bloc at a conference in Peru said rising oil and food prices had injected complications and uncertainties in otherwise buoyant economies. Fears of runaway inflation have led to cuts in government spending in Brazil, Chile, Argentina and other countries.

The central bankers and financial decision-makers from Mercosur member countries said global recovery from the effects of the 2009 economic downturn was facing twin pressures from rising oil prices and potential slowing of demand from the Middle East, until recently unaffected by the European recession.

"The task of central banks becomes more complicated because of several current factors. In the first place, the high prices of food and oil generate inflationary pressures," a statement read out at the end of the conference said.

Mercosur members and associate members include Argentina, Brazil, Chile, Paraguay, Peru, Uruguay and Venezuela.

Already regulating central banks are under pressure to raise interest rates to control politically sensitive inflationary trends.

High global prices for commodities and the strong domestic demand could force the central banks in Brazil, Chile and Peru to tighten monetary policies and increase interest rates this year, conference source said.

Chile and Peru, strong exporters of commodities, have been using foreign exchange reserves to absorb some of the increases in basic produce so consumers don't suffer the full impact. Riots over withdrawal of fuel subsidies in Chile left at least two people dead.

However, regulators are being cautious over interest rates increase because of its potential for making the local capital markets more attractive to foreign investors. Large inflows of capital from other countries pushed up the value of Brazilian and Chilean currencies, requiring expensive interventions from central banks to cool them down.

The central bankers echoed concerns elsewhere in the financial community that the Chinese economy may be slowing, with far-reaching consequences for Latin American commodity exporters.

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