The federal government finally unveiled the so-called Package Against Inflation and Scarcity (PACIC), a program that seeks, through various actions, to contain the inflationary phenomenon and protect the purchasing power of wages.
There was much speculation about the possibility that the government decided to implement direct intervention measures in various markets, particularly through price regulation, which would have contravened the Federal Economic Competition Law. More importantly, however, such an intervention would have put a number of companies whose costs have risen and operate on thin margins in a compromised position. For them, an imposed price reduction of 20%, as was speculated, would have been deadly.
It is possible that the announced measures have little effectiveness, because most of them refer to deep historical, structural problems that cannot be resolved through a temporary plan. This is the case, for example, of corn production. Even if production is increased by 2 million tons per year as intended, this volume is only equivalent to 5% of apparent national consumption and 7% of national production. This would not solve the supply problem, because the demand has been growing, determined by human consumption and the production of food for livestock. But, in addition, the improvement in production would not directly affect the inflation problem, because it is well known that the price of corn is determined in the Chicago futures market, and that reality is not going to change because we produce a little more corn.
The program announces measures that should be applied, regardless of the inflationary situation we are experiencing. This is the case of combating insecurity on the highways, improving the efficiency of customs clearance or streamlining the clearance of goods at ports.
It is also announced that Profeco will act to monitor the prices of a basket of 24 basic products. However, the bases on which this authority will act are not clear, because there would be no price control, what will be the parameter to determine the existence of abuses?
Despite these problems or limitations, I see positive aspects in the ad. No radical measures are presented, such as price controls, nor is a change in macroeconomic policies anticipated. Interestingly, probably for the first time in the current administration, there is an emphasis on the need to promote the opening of markets, allow greater competition and strengthen supply chains.
This means a recognition of the importance of the efficient functioning of the markets. On previous occasions I have pointed out that economic competition is not an instrument to combat inflation. However, it is a tool that helps markets work better, costs are lower and situations that prevent competition and limit productive investment are eliminated. For this reason, although it does not directly combat the generalized increase in prices, competition policy helps the healthy functioning of the economy and allows us to face adverse situations such as the one we are experiencing in better conditions.
The efficient and competitive functioning of markets is like exercising. A person who exercises is not exempt from contracting a disease, such as Covid-19. However, your good physical condition will allow you to better deal with the infection and will help you recover faster.
The current situation makes clear the importance of having institutions that strengthen the operation of the markets. I hope that our authorities change their attitude towards the autonomous organizations that seek the existence of competition in the markets, support their operation and appoint the missing Commissioners for the due integration of the organizations.
@javiernunezmel
Consultant
Competition and Markets
Consultant in Economic Competition and Regulation, he is also a university professor.