Allowing inflation to continue to exceed the specific objective will be more costly for Mexican families than the impact that tightening monetary policy would have on the economy, said experts from the International Monetary Fund (IMF).
In the annual review carried out by technicians of the IMF in Mexico, the third received by the Andrés Manuel López Obrador administration, recognized that the Bank of Mexico faces a dilemma in directing the monetary politics in the midst of an economy where slack prevails and with upward pressure from inflation.
The agency’s technicians highlighted that the job recovery After the pandemic and the great confinement, it is of lower quality than before the shock. In this context, the fall in disposable income that occurs in a period of rising inflation can aggravate the situation of households.
“Underemployment with penalized wages will be much more persistent over time than in other post-recession recoveries, since human capital and the supply of jobs have depreciated at the same time, generating lower productivity per worker,” they highlighted.
To assist in the considerations of the Governing Board of Bank of Mexico that this week will release their penultimate monetary announcement of the year, the experts of the Monetary Fund detailed that it is less expensive to harden the monetary politics to facilitate a more orderly adjustment in price formation than to run the risk of inflation becoming more persistent over time.
“Tightening monetary policy could limit the possibility that price increases will last longer; it could also help to anchor inflation expectations more firmly ”, they explained.
Transitory inflation and pricing
In the analysis, the specialists of the IMF They recognized that the change in the monetary policy bias, from accommodative to restrictive, will create production costs and even sacrifice in job creation.
But they stated that “these are relatively modest costs compared to those that would motivate the search for a new anchor for inflation.”
The theme of the inflation and their transience were deeply reviewed during the experts’ visit to Mexico. They recognized that a gradual path in the withdrawal of monetary support can offer a positive balance on the economic recovery.
Above all, granting that the origin of inflationary pressure lies in the reopening of economic activities and bottlenecks in international supply chains.
However, they recalled that how Mexico granted one of the weakest fiscal supports in the initial shock of the pandemic, which favored an increase in the population in poverty by increasing unemployment.
These conditions suggest that the social cost of inflation will be much higher.
Low-quality employment
In the review to which Mexico is entitled as a member of the IMF As established in Article IV of the Constitutive Agreement, the agency’s technicians recognized that the recovery of employment after the pandemic and the great confinement in the country is of lower quality than that prior to the shock.
“Underemployment with penalized wages will be much more persistent over time than in other post-recession recoveries, since human capital and the supply of jobs have depreciated at the same time, generating lower productivity per worker,” they highlighted.
In the diagnosis of the labor market, which was presented to the Ministry of Labor, Luisa Alcalde, they explained that the recovery of jobs was completed at the expense of the quality of the supply. This means that workers were reinstated with low-paying jobs and no benefits.
And they pointed out that this deterioration in the job offer could be linked to the more lasting impact of an economy that recovered without the fiscal support of the authorities during the most severe stage of the pandemic, in the Confinement of the second and third quarters of last year. .
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Reference-www.eleconomista.com.mx