“In that line, if the prices shoot up and they get out of that disbursement -of that ticket- they have to adjust the weights or the quantity so that they can be adjusted to the disbursement that you can pay,” said Ghirardelly of Kantar Mexico
“The most affected is the consumer, since they receive a smaller amount of product for an equal or even higher price,” added Marco Montañez, deputy director of fundamental analysis at Vector Casa de Bolsa.
Regardless of the adjustment made by the brands – price, quantity or quality – the impact is similar to what it would have been if there had been an increase in price. “The final effect is somewhat the same as that of price increases: it inhibits or limits the purchasing power of consumers. In the end, what this does is reduce the purchasing power of the currency and, to a certain extent, there may be effects on growth. If the products become more expensive, that inhibits the consumption of certain products”, added Roldán from Finamex Casa de Bolsa.
Other options, pointed out the specialists consulted, have to do with looking for cheaper variants or varieties -quality adjustments-, making their production processes more efficient; in addition to making advance purchases or contracting coverage of its main inputs.
“In some cases, there will be companies that can consolidate their market shares through acquisitions of other companies, to achieve economies of scale, and thus lower unit costs and maintain their competitiveness,” said Montañez.
What will happen when inflation returns to Banxico’s target?
According to the central bank, inflation will return to the target of 3% +/- one percentage point until early 2024.
As prices fall again, the market will have different mechanisms to readjust its prices, always with the premise that these increases will not be part of a “new norm” and in which “price increases are gradual, small ”, Jessica Roldán pointed out.
“Hence, Banxico has to act forcefully to send that signal that this inflationary phenomenon is associated with circumstantial factors that have to do with the war, with the pandemic, but that it is not part of a new world,” he added.
These price adjustments, once the inflationary shocks caused by the pandemic and by the war between Russia and Europe pass, will depend on each product”, concluded the deputy director of fundamental analysis at Vector.
