Some 20 merchants harassed by “floor charges”, service providers frightened by criminal threats and industrial leaders told Reuters that prices have increased, in some cases by up to 20% as reported by producers of the emblematic tortilla, due to the impact of a silent “tax” that usually grows progressively.
The deputy governor of Mexico’s central bank (Banxico), Jonathan Heath, said that although the monetary authority does not have hard data to evaluate the impact of insecurity, extortion and floor charges on price formation, “we have ample anecdotal information that indicates that it is not only an important factor, but a growing one, in such a way that it contributes to the inflationary process that we face.”
In response to how it is affecting the room for maneuver to lower inflation and cuts to the key rate he added a few days ago – in a written response to Reuters – that this problem can no longer be characterized as “conjunctural” but as “structural” given that it is rooted in the economy and, without a doubt, “makes it difficult to achieve our goals.”
“The problem is that while it affects the Bank’s ability to achieve our objective… we have no way of quantifying it or how to adjust our 3% target in light of this fact. We know that it contributes to explaining the current persistence of inflation and we believe that it is more present in the prices of services (which has to do with the distribution of goods), but we are very limited in wanting to quantify the phenomenon and therefore, modify objectives.”
General inflation stood at a 5.16% year-on-year in the first half of August gradually slowing down from its highs in more than two decades of 8.77% in 2022. However, it is still far from Banxico’s 3% target.
Out of economic dynamics
Although analysts, officials and experts say that it is difficult to measure the impact of the extra costs due to insecurity and extortion, and there is no formal indicator to prove it, the transfer to prices is real, according to many of those affected.
“The phenomenon of extortion has reached worrying levels with a significant impact that not only affects the companies that are directly extorted, but also has ramifications that reach the consumer’s pocketbook,” said Andrés Abadía, an economist at Pantheon Macroeconomics.
The ANPEC association, which brings together small merchants, says that the collection of fees has focused mainly on some basic products, such as avocado, lemon, chicken and tortillas, which are essential in the Mexican diet.
“The Bank of Mexico’s job is more complicated than that of other countries that do not have this type of problem because it is generating effects that are impacting inflation that are outside the economic dynamic,” said Jacobo Rodríguez, a financial specialist at the analysis firm Roga Capital.
However, some economists believe that while extortions may distort prices, their real impact is very limited, and would therefore have little impact on the national inflationary process. Others say that they may already be incorporated into prices, although they admit that if the amount of the “quotas” increases, the final price also increases.
Banco de México did not respond to a request for comment on the effects of extortion on prices.
However, in a report on regional economies for 2023, it was reported that company executives from across the country stressed that insecurity, particularly crimes against producers, distributors and transporters, such as theft and extortion, has been reflected in higher costs for companies, which are passed on to the prices of products such as avocados, lemons, cereals and other primary foods. However, no figures were provided.
“We are hostages”
According to Mexico’s largest employers’ association, Coparmex, one in nine of its members reported having suffered some form of extortion in 2023, while 65% of members said they had increased their spending on security, by installing surveillance cameras, buying armored vehicles and hiring guards.
Nor did it provide detailed estimates of the effects on prices.
