Inflation for the first half of January 2022 was estimated at 7.13%, so the inflation economic traffic light is in red: it was not possible to place it within Banxico’s target range (3% [+/-1%]).
Why should we care? A controlled inflation allows to maintain the purchasing power of people, at the same time that it encourages the production of goods. If inflation is too low, merchants lose interest in offering their goods; if it is very high, individuals and households reduce their purchasing power.
The current scenario, in which food and beverages skyrocketed 11.92% annually in the first half of January, there is concern because although the price increases are generalized, it will be the households with less purchasing power who will not be able to withstand the inflationary rhythm. This is the risk that inflation will become a regressive tax that affects people with lower incomes in greater proportion.
It is worth mentioning that, in general, particularly high inflation rates have been observed worldwide; that is, this phenomenon is not exclusive to Mexico and the actions that can be carried out to address it are relatively limited. Monetary policy has a limit, in addition to the fact that there are pressures on inflation that are not caused by excess demand, so it is time to seriously discuss the role of economic competition in prices, more monopolies equal higher prices . Given this context, we would expect the central bank to be more aggressive and raise interest rates more.
Without a doubt, inflation will be one of the themes to follow this year. It is important to be very aware of its evolution, given the risk of affecting the most vulnerable households in the country in greater proportion and deteriorating the country’s macroeconomic conditions and, if we want Mexico to have sustained and inclusive growth, we have to take care of this challenge derived from the economic reopening due to the COVID-19 pandemic.
Publisher’s note: Katia Guzman Martinez is a data coordinator at Mexico, how are we doing? , which records in detail the economic growth of the country. follow them on Twitter , Facebook and Instagram . The opinions expressed in this column correspond exclusively to the author.
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