Inflation still unchecked in Mexico

A year ago, general inflation in Mexico had already exceeded 6% in annual terms and there were not a few who proclaimed that it was a temporary phenomenon, that there was nothing to worry about, that everything had to do with a return to a certain normality after the worst moments of the pandemic and the result of a gradual reopening of activities with vaccination campaigns.

By that time it was already clear that some production chains had been broken due to the pandemic, that there was a marked shortage of some electronic components and that the logistics of merchandise distribution presented significant bottlenecks.

Still, even some central bankers leaned toward nothing-happens.

And a year later, during the first fortnight of April this 2022, general inflation not only did not return, as those sang, but is now in that prelude to 8% per year. Of course, now we must add to the equation the Russian invasion of Ukraine and the little chance of a soon peace agreement.

In Mexico, April used to be one of those months that the governments liked to brag about, which they understood, of course, because usually the fortnightly and monthly result, as in May, used to be negative due to the subsidies that are applied to the rates electricity in some parts of the north of the country derived from the hot season.

That no longer happened at least during the first fortnight of this April.

But there is something else that you should really understand that these inflationary pressures are already generating that expectation that they will continue.

The data that should receive special attention at this time is core inflation, that set of prices that are not reactive to time, which during the first fortnight of this month of April already reached a measurement of 7.16 percent.

The food, beverage and tobacco sub-index already accumulates an annual inflation of 10.68%, but little by little the services are beginning to raise their prices and at this time, when the regularization of activities is just beginning after the worst phase of the pandemic, it has an accumulated inflation of 4.94%, which is double the inflation registered in that subindex of subjacent inflation a year ago.

This rising trajectory of underlying inflation is what should draw the most attention, especially from the monetary authority, because the market must be convinced that it is possible to recover a downward trajectory of inflation with the measures of the Bank of Mexico.

And it is also necessary to hurry so that rational monetary policy measures are the ones that prevail before a populist outburst can opt for measures as harmful to the economy as price controls.

We have already seen the negative effects of price controls in the LP gas market and we already know the accounts of what will stop entering the public coffers for the concept of fiscal subsidies for gasoline.

As inflation has an unavoidable political effect, the risk of an unfortunate intervention, dictated from the morning, is a real fact.

What not to lose sight of

the underlying

During the first fortnight of this month, core inflation already reached a measurement of 7.16 percent.

Food and drinks

The subindex of food, beverages and tobacco already accumulates an annual inflation of 10.68% per year, but little by little services begin to raise their prices.

Gasoline stimulus

At least 350,000 million pesos will stop entering the government coffers this year due to the stimuli for gasoline.

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