Inflation in Mexico is no longer transitory, considers the Treasury

Inflation in Mexico is no longer transitory, considers the Treasury

In addition to these chains around the world that are difficult to link up again, there are geopolitical tensions that began in 2018-2019 with the trade conflict between the United States and China, which prompted the need to relocate companies to areas where they could have more resilience.

“This came to accelerate with COVID, as many of these chains are distributed around the world, it is more difficult to link them again, and it has led, for example, to a very clear policy on the part of the North American bloc (Mexico, United States United States and Canada) to relocate companies in the bloc; for the gains for the balance of payments, and for the resilience of the value chains”, commented Yorio.

The official explained that in the north of Mexico relocation is already taking place naturally, and also in part of the downtown corridor, for which we are beginning to see inflation in wages, a shortage of labor, an increase in the prices of income and expansion of industrial buildings, which represents a recovery of the economy in these entities.

“In Mexico we still have workers who are willing to join the labor force for a given unit of wages. In the United States, the labor force is practically at full employment and this means that it is beginning to face salary inflation. This is very important because the situation in the United States and the monetary adjustment rule includes the evolution of the labor market, unlike in Mexico,” added the Undersecretary of Finance.

He stressed that the Mexican central bank already considers that the 3% inflation target may begin to converge in 2023.

The Bank of Mexico (Banxico) against inflation has already made three increases of 50 base points to the reference interest rate. In addition, market expectations for the rate have increased from 7.25% last year to 9.25% this year.

“The effect of monetary policy is going to be more limited in the short term since the shocks come from the supply side and not from the demand side, however, inflation expectations are becoming unanchored internationally and also in Mexico. rose a bit, so the central bank’s action is targeting the anchoring of expectations, usually the period of monetary action is between 12 and 18 months and that’s where we’re going to start to see convergence to the inflation target.” Yorio commented.

He added that given the rise in interest rates in the world it will be more expensive to go out and look for debt, especially in the United States and European markets, however, between 2019 and 2020 the government carried out refinancing operations to eliminate the need to carry out debt at higher rates in these markets.

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