Core inflation becomes the main threat to your pocket

Core inflation becomes the main threat to your pocket

Headline inflation reached 7.37% in the eleventh month of 2021, a level far removed from the Banco de México (Banxico) target of 3% +/- one percentage point.

What is underlying inflation?

Core inflation is another way of looking at inflation because it excludes the most volatile goods and servicesIn other words, it does not take into account the price of some energy sources and agricultural food because the behavior of these goods is due to seasonal factors ”, explained Héctor Magaña, coordinator of analysis and research at the Center for Research in Economics and Business (CIEN) from the Tecnológico de Monterrey.

Edible vegetable oils and fats, corn tortilla and non-durable disposable items stand out among the goods with the highest price increases at an annual rate in core inflation, with 34.21%, 16.85% and 16.61%, respectively. On the services side, air transport, packaged tourist services and hotels became more expensive by 34.71%, 12.07% and 10.24%, respectively.

For Banco Base, the upward trajectory of core inflation is the main upward risk for headline inflation: the increases in prices are due to raw materials, which in turn make food merchandise more expensive, while non-food goods have raised due to increases in transportation costs and inputs for its production.

“These goods, to manufacture them, require inputs that are mostly imported and both the inflation that has also hit the US and the depreciation in the exchange rate have impacted on the cost of these inputs, (so) the Manufacturing cost tends to be transferred to final consumers ”, commented the professor from Tecnológico de Monterrey.

Structural damage?

The specialists consulted agreed that despite inflation doubling the central bank’s target, there are still far from structural problems.

Héctor Magaña considered it premature to say that inflation already has a structural problem: “I think it will depend a lot on the evolution of inflation in the first half of 2022 to know the impact that the general price level has on the economy and see how they are evolving ”.

“Inflation is affected by volatility in the exchange rate and by capital outflows. There, something can be done from internal economic policy, which is more conciliatory; fewer initiatives and reforms and, in this sense, the popular consultation to revoke the mandate may generate more uncertainty, ”Siller said.

Alejandro Saldaña, Chief Economist at Banco Ve por MásHe commented that in the face of the rise in prices, Banxico tries to operate through the channel of expectations, in which it seeks to send a message that it is going to take the necessary actions so that inflation begins to fall in a moment. “That builds trust and a certain credibility and keeps expectations anchored.”

Next week, the central bank will have its last monetary policy meeting of the year, where analysts estimate that there will be an increase in the reference interest rate of 25 basis points, to leave it at 5.25%.



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