The detail of AMLO’s plan against inflation

The federal government announced with great fanfare its Plan to reduce inflation. This consists of the different sections:

1. Stabilization of the price of gasoline and diesel, reference prices of LP gas and electricity, which represents an effort of the Federal Government of 330 thousand million pesos.

2. Increase in grain production Sum of efforts of the “Sowing Life” and “Production for Wellbeing” programs. This more than an action, is the continuation of one that already existed.

3. Fertilizer delivery. The Fertilizers for Wellbeing Program is expanded from 5 to 9 states. The Emerging Organic Fertilizer Production Program is announced. These projects already existed.

4. Elimination of countervailing duty on ammonium sulfate Suspend countervailing duties on imports of ammonium sulfate for one year. (Increased food supply). This measure is due to foreign trade reasons independent of the agreement.

Distribution Measurements:

5. Strengthening of the road safety strategy More than 12,000 elements and 2,300 vehicles will guarantee road safety. Here he confuses magnesia with gymnastics, since external security has nothing to do with controlling inflation.

6. No increase in highway tolls (CAPUFE). CAPUFE and FONADIN highways will not increase rates in 2022. This will be a measure with residual effects.

7. Porte Document Exemption (basic and supplies) Until October 1, 2022, if necessary it would be extended for another period. This is a move for tax reasons, which has nothing to do with the deal.

8. No increase in railway rates or consideration for interconnection. Measured for 6 months, applies to transport food, fertilizers and hydrocarbons. Here the PROFECO has unloaded with a policy of terror against the iron industry. Furthermore, the rail industry has very little effect on overall national transportation.

9. Reduction in costs and customs clearance time

  • Greater volume of operations in all customs (border, maritime or interior).
  • Make customs recognition more expeditious.

These two measures are due to customs reasons, not to control inflation.

10. Agile cargo clearance in seaports

  • Speeding up preventive dredging and automatic lanes.
  • 24-hour operation and increased staff.

11. Zero import tariffs (basic and inputs)

  • Temporary measure for 6 months.
  • 21 of 24 products of the basic basket and 5 strategic supplies.

This measure can indeed have inflation control effects. Of all those mentioned, it is the first of them.

Foreign trade strategy. Import from:

  • Food: Corn oil, palay rice, tuna, pork, chicken, beef, onion, jalapeño pepper, beans, egg, toilet soap, tomato, milk, lemon, apple, orange, box bread, potato, pasta for soup, sardine, carrot.
  • Inputs: Corn flour, wheat flour, white corn, sorghum, wheat.

Other measures:

12. Constitution of a strategic corn reserve (emergency measure) Purchase of 800 thousand to 1 million tons of corn with resources from SEGALMEX. This measure by itself does not stop inflation.

13. Guarantee prices in corn, beans, rice and milk. SEGALMEX will continue to implement the Guarantee Price Program that establishes a minimum purchase price for small producers. Small producers do not have the strength to achieve a price change; It is a measure of social justice.

14. Strengthening of the Supply Program (DICONSA/LICONSA).

15. Private participation in the PACIC • Committed coordination with the government for six months, extendable after impact evaluation. • It is expected that after the presidential announcement, more companies will join this space for dialogue and consultation.

16. No increase in prices of Telmex and Telcel services • With this measure announced by Telmex on May 2, it is in solidarity with helping to reduce the generalized inflationary pressure that is affecting most countries, including Mexico.

The budget to be invested by the Federal Government according to the government’s own calculations is 1.4% of GDP estimated for 2022. Without the IEPS gasoline stimulus and the additional stimuli, inflation in April would have been 10.0% and not 7.7% as it turned out. This measure effectively helps stop inflation, but it is regressive. Perhaps a subsidy focused on buying the basic basket at a lower price would have helped the low-income population more.

There are other budget programs with contributions to control inflation (in millions of pesos)

  • A. Food safety. Sowing Life, Production for Welfare: Guarantee Prices for Basic Food Products. Fertilizers, Supply and purchase of milk from the Rural Supply Program by Diconsa. Program for the Promotion of Agriculture, Livestock, Fisheries and Aquaculture.
  • B. Domestic electricity subsidy
  • C. Gasoline subsidy

The most relevant part of the program is the support of not increasing prices agreed with the producers of items of the basic basket (PROFECO) Unit* 1 Canola or corn oil 1 piece of 946 ml 2 Rice in grain 1 kg 3 Canned tuna 2 140g cans 4 Brown sugar 1 kg 5 Beef steak 1 kg 6 Onion 1 kg 7 Jalapeño pepper 1 kg 8 Pork chop 1 kg 9 Whole beans 900 g 10 White chicken egg 18 pieces 11 Toilet soap 1 piece 12 Tomato saladet 1 kg 13 Milk 5 liters 14 Lemon 1 kg 15 Apple 1 kg 16 Orange 1 kg 17 Bread 1 package of 680 g 18 Potato 1 kg 19 Toilet paper 1 bag of 4 pieces 20 Pasta for soup 1 package 220 g 21 Whole chicken 1 kg 22 Canned sardine 1 can of 425g 23 Corn tortilla 4 kg 24 Carrot 1 kg

The expected effects on price control are 27% of the cost of the basic basket:

  • PROFECO Basket: 13% of the General Price Index (INPC).
  • Energy: 10% of the INPC.
  • Rates authorized by the government: 4% of the INPC.

What do we think of this agreement? We do not deny his good will, but good will does not govern. There is a price control mechanism provided for in the Federal Economic Competition Law (LFCE) which is perhaps what should have been used, since otherwise the price agreement between the government and economic agents is illegal. A declaration of lack of effective competition by the Federal Competition Commission and an agreement on maximum prices by the Executive is required. This system has not been used, perhaps due to the bad press of price controls, but it is what the Law establishes and although AMLO does not like it, the law is the law.

On the other hand, the collaboration or opinion of the Bank of Mexico is missing, which is the body constitutionally responsible for controlling inflation, which could have completed the agreement with monetary policy decisions. The interest rate is not the only measure available to Banxico so that the purchasing power of the population is not lost.

In short, more atole with the finger than the current government has been giving us. One more atole is not expensive. What is expensive is the increase in prices that the entire population suffers and that with this measure will not change substantially. Failed Ramírez de la O.

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