Pressure factors
In addition to the price of energy and food, there are other factors that may influence inflation to remain high.
Among these elements is the increase in coronavirus infections worldwide, which has caused the return of social distancing measures in some countries and other restrictions. This has resulted in new shocks on the supply side.
Another factor to follow closely, said Alejandro Saldaña, has to do with the exchange rate, which may be affected by the withdrawal of the Fed’s stimuli, planned for this year. “The process of monetary normalization can lead to elements of exchange rate depreciation in emerging countries” and with it an increase in prices of intermediate products, he said.
The BX + chief economist said that raising the minimum wage, which places it at 172.34 pesos in most of the country and 260.34 on the northern border, could make production costs more expensive and impact final prices.
Structural problem
Although headline inflation has been above Banxico’s target since March 2021, specialists agree that it is still not possible to speak of a structural problem.
“To understand it in a structural way, we would have to think about the permanence of certain distortions that generate a new condition of price formation, which is no longer passing, but is here to stay,” said ITAM professor, Víctor Gómez.
The price index will converge towards Banxico’s goal as supply chains are normalized and bottlenecks are ended. “When all that disappears and we see what the level of inflation will be in the Mexican economy, that is when we will know if there is indeed a structural problem,” he added.
If medium and long-term inflation expectations change upward and are anchored at a level higher than Banco de México’s goal, it will be possible to speak of a structural problem, agreed Saldaña and Gómez.
They considered it necessary to establish an economic policy that generates greater competitiveness and competition in the market; in addition to providing greater certainty, since there are aspects in which the government can positively promote price formation and, thus, help keep prices from rising.
1/4 Although it is true that headline inflation peaked in November 2 and has decreased since then, we must be careful, since the decrease is entirely due to the non-core volatile and even random component, while the underlying remains upward. pic.twitter.com/K0lQzFNspD
– Jonathan Heath (@ JonathanHeath54)
January 7, 2022
