The members of the Governing Board of the Bank of Mexico explained this Wednesday that talking about “temporary” inflation is not the same in terms of annual inflation as it is in terms of the price level.
“We are being very precise, what is expected is that the shocks that have affected prices will have a temporary, temporary effect in terms of annual inflation,” explained the governor of Banxico, Alejandro Díaz de León.
The governor added that when one speaks of “transitory” it is necessary to determine whether it is talking about the price level or inflation :.
“It is necessary to speak of temporary or transitory nature when talking about annual inflation and it is different if one talks about the effect on the price level. It is the obligation of the central banks that it be temporary and that inflation returns to its goal,” he said.
The day before, the president of the Federal Reserve of the United States, Jerome Powell, said that the term “transitory” is no longer the most accurate term to describe the nature of inflation because the rise in prices is spreading more widely. so the risk of higher inflation has increased.
“In general, the higher prices that we are seeing are related to the imbalances of supply and demand that can be detected from the pandemic and the reopening of the economy,” said the president of the US central bank when appearing before the Senate the Tuesday morning.
When asked to Lieutenant Governor Gerardo Esquivel if he agreed with Powell’s statements, he responded that what the American meant is that the word “transitory” is complicated because “it means different things to different people.”
“What I was pointing out is that for some people transient it means short-lived and transitory, actually, how we usually use it -or how I usually use it- refers to the fact that it should not have a permanent effect on inflation and that seems to me to be the correct way to use it, “said Esquivel, who has voted against raising Banxico’s interest rate in the last monetary policy meetings.
The economist highlighted that one of the examples of transitory inflation is what happened with durable goods, that due to the change in behavior due to the pandemic, people chose to spend on these goods instead of services.
“We allocate our resources to durable consumer goods and that could have changed the relative prices of these goods with respect to services, but it does not mean that it will be repeated on a recurring or persistent basis because it will be an effect that will occur only once and forever” , said.
