As for the overall performance of our economy, although the Mexican economy showed progress in the first quarter of 2022 (Timely GDP estimate), it is important to remember that we came from two consecutive quarters without growth. In addition, we have not yet returned to pre-pandemic levels, our economy is similar in size to what it was in the fourth quarter of 2016. At the state level, the recovery has been very heterogeneous. Only eight states of the Republic showed an annual growth of more than 4.5% and nine have returned to their pre-pandemic level.
In this context of high inflation and incomplete economic recovery, the president had announced last week that a proposal would be presented that seeks to contain inflation, specifically the price of 24 products of the basic basket .
The Federal Government has mentioned that this pricing strategy righteous It is not a price control strategy, that is, unilaterally defining the prices of the 24 products of the basic basket so that the consumer price does not exceed the established price, but a price containment strategy so that these items do not continue the price rise observed in the second half of 2021 and in the first months of 2022.
This Wednesday, May 4, at the president’s morning conference, the Package Against Inflation and Famine (PACIC) was presented, which includes four main strategies: the production strategy, aimed at increasing the food supply; the distribution strategy, which revolves around not increasing transport rates (road and rail tolls); the foreign trade strategy, with zero import tariffs for 21 of the 24 products of the basic basket and five strategic inputs and finally; other measures, where I would like to highlight the private participation in the PACIC ( America Movil, Grupo Bimbo, Walmart, Chedraui, Soriana and Gruma ) and the commitment of no increases in the prices of Telmex and Telcel services.
To comply with this price containment agreement for certain products, companies must implement a cross-subsidization strategy, where the loss of profit from maintaining the stable price of a certain product is compensated through the increase in the price of other items.
For example, in a trading company that sells only two items, beans and lentils, the cost of keeping the price of beans stable is passed through to the price of lentils so that the firm’s profits generally remain constant.
However, these strategies can only be implemented by companies that can make this substitution, in terms of capabilities and variety in their supply of goods. A small neighborhood store that only sells some of the 24 products that PACIC seeks to contain will not have the capacity to transfer the costs of maintaining the price of a stable good.
In the event that this price containment strategy were extended until the second quarter of 2023 (the quarter in which Banxico forecasts a return to the variability range), this loss in profit could mean the closure of millions of small and medium-sized companies, with very high costs. for employment and entrepreneurship in Mexico. During the pandemic, for every company that closed, almost 2.5 jobs were lost, while the companies that were born in the period only created 2 jobs.
Finally, this anti-inflationary plan should have as one of its main objectives that the purchasing power of the poorest households does not deteriorate further; that is, that the number of households where the disposable income to buy food is not enough does not increase. However, the PACIC does not consider social policy programs that seek to lessen the fall in the purchasing power of lower-income households.
The social policy implemented by the federal government is insufficient. In 2020, only 37% of the poorest households (income decile I) were beneficiaries of social programs, a considerable decrease compared to what was observed in 2018, when the scope was 56%.
This means that 63 out of 100 of the poorest households in the country are in a high-risk situation due to the general increase in prices, specifically of the items that make up the basic basket.