At the slightest provocation, this government insists on lashing out at market forces. Last week we saw two more signs that decree measures are the enemy of the market. The president announced the “Package against inflation and famine” (two synonymous terms) which consists of a series of interventionist measures on the side of aggregate supply to mitigate the impact of higher prices on the basic consumption of the most needy segments. It covers 24 prices of goods from the basic basket, as well as other products such as gasoline, gas and telephony.
Although it is not a direct and managed price control like the ones in the 70’s, they are actions that were arranged with the private sector (in the form of a pact, but that term for the 4T has a connotation of the PRI past) so as not to increase the aforementioned prices during the next six months. In that sense, it is a social program in coordination with the private sector. It is not an anti-inflationary plan that is going to significantly reduce general inflation. The 24 products mentioned have an impact on general inflation of only 13 percent.
Inflation is not reduced either by decree or with controls. The government mentioned that, if the IEPS for gasoline had not been subsidized 100%, inflation in the first half of April would have been 10% and not 7.72 percent. That is, they agree to artificially lower inflation, distorting the natural process of price formation. That is, supply and demand determine the price level. If it is high, the ideal instrument is monetary policy. It must be reiterated: a drop in inflation will not come from controls or decrees or pacts, but from restrictive monetary actions by the Bank of Mexico.
Another violation of market rules is to issue an alleged decree to force airlines to compulsorily transfer their operations and thus force the consuming public to use the AIFA. What the government does not understand is that this is a rational choice of companies and consumers. If the new airport had been inaugurated with adequate connectivity that it does not have today and with many more destination options than just six cities, surely many consumers would have chosen to fly from the AIFA, for example, to Villahermosa and not from the AICM. But they do not do it because they take into account all those inconveniences that represent costs for the consumer’s pocket. Consumption cannot be imposed by decree. The government does not understand that the decision for airlines and users to use the AIFA is an economic, financial, preference and operational decision, which cannot be forced with a decree only for political purposes. The government feels “smarter” than the market and believes it can manipulate supply and demand.
In the long run, the two types of manipulations described, both to inflation and to airport use, will be unsuccessful and the distortions they caused will be more expensive to correct. Sooner or later, market forces end up prevailing.
Twitter: @frubli
Economist
IMEF Magazine
Economist graduated from ITAM. He has a Master’s degree and doctoral studies in monetary theory and policy, and international finance and trade. Columnist for The Economist. He has been an advisor to the Board of Governors of Banxico, Director of Institutional Liaison, Director of External Relations and Coordinator of the Governor’s Office, Manager of External Relations, Manager of Macrofinancial Analysis, Deputy Manager of Macroeconomic Analysis, Deputy Manager of International Economy and Analyst .