The upward trend brought by inflation and the consequences of the war in Ukraine are marking the moment for monetary policy to be coordinated with the fiscal policy and with the Private Initiative (IP) to try to stop the escalation of prices, observed the director of the Institute for Industrial Development and Economic Growth (IDIC), José Luis de la Cruz.
Economic policy is facing an event that is not exclusive to Mexico that had not occurred in decades: a pandemic and a war. Those should be the motivators of a coordination agreement, he stressed.
Interviewed by El Economista, he explained that with inflation at 7.23% and still under pressure, interest rates alone will not be enough to stop it.
It is true that inflation is at levels not seen in two decades. But at that time, in 2001, Mexico was immersed in a disinflation process, without upward pressures and heading for the convergence of the 3% target, he warned.
Now, with inflation at 7.23% and upward external and internal pressures, the scenario is completely different, because expectations have already been disanchored, he asserted.
The pertinent question for the authorities now is whether they will have the ability to curb inflation beyond the rate move.
Pressures meet 22 months
De la Cruz commented that when the increase in the prices of raw materials such as oil, gas, minerals, food and metals began in May 2020, it was clear that they were going to end up hitting inflation.
Mexico is a structurally deficit importing economy, he argued. The country imports 400,000 million dollars a year of intermediate inputs, this is 40% of GDP.
“The forecast (of the Bank of Mexico) was not adjusted to what had been happening despite the fact that the magnitude and trend of these increases were already seen in December 2020 and continued to incubate in 2021, through intermediate products and basic goods” , he recounted.
The IDIC director and former public official emphasized that this accumulated tension ended up putting pressure on the production and logistics costs of companies in Mexico, and that is what is reflected in the trajectory of the National Producer Price Index (INPP) that today they are above inflation, at 8.70 percent.
“The trend maintained by the INPP indicates that a transfer did occur, probably not 100%, but there was a certain absorption of costs by the companies, which has ended up being passed on to the final consumer.”
lagged impact
The IDIC expert explained that since the INPP is above the National Consumer Price Index, “we can assume that there is still a lag that will continue to reach the final consumer.”
The Saver think lab economist, Luis Pérez Lezama, explained that the INPP is an indicator that usually brings six months of lag before reaching the final consumer. And since it is the producers who set the prices, the pressure ends up reaching the final consumer.
It is good that there is recognition from Banco de México that the inflation situation is exceeding its expectations, because there is transparency regarding what they observe, he commented.