Headline inflation is made up of core and non-core inflation. In turn, core inflation is subdivided into merchandise and services, which are the least volatile prices. This reflects how prices behave structurally.
On the other hand, non-core inflation includes energy and agricultural prices, which represent the most volatile generics. The generic concept is the minimum category that is taken into account to be represented and weighted in general inflation. Generics are made up of specific products.
The behavior of non-core inflation responds to market variables, that is, to supply and demand and also to the prices of services controlled by the federal government, for example, electricity services.
For example, if the price of gasoline increases, the government subsidizes it so that its rise behaves around inflation. How? reducing the IEPS production tax so that the increase in the price of gasoline is based only on general inflation. Thus, the government absorbs the impact, that is, it receives less income from IEPS.
One of the promises of the government of the fourth transformation was that the increase in gasoline would not increase in real terms, that is, beyond general inflation.
In the case of agricultural goods, for example, if the tomato crop was affected by a hurricane, prices would rise due to the scarcity of the product.
In this sense, the effectiveness of monetary policy does not impact the behavior of non-core inflation, it is sterile.
Non-core inflation accounts for just over 24% of the calculation in the weighting of headline inflation.
How is inflation calculated?
From the National Consumer Price Index (INPC). A Consumer Price Index is an economic indicator that measures, over time, the average variation in the prices of a basket of goods and services representative of household consumption in the country. The growth rate of the INPC from one period to another allows us to measure the economic phenomenon known as inflation.
Where do the price quotes come from?
The prices come from the price of a basket of generic goods and services from 55 geographic areas located in the 32 states, which include cities with at least 20,000 inhabitants, including the 10 largest metropolitan areas.
How many generics does the basket include?
The basket considers the total consumption expenditure of households at the national level, distributed in the 299 generic items, thus reaching a coverage of 91 branches of economic activity, corresponding to the agricultural, livestock, industrial and service sectors.
Why is there a different perception of inflation in households?
The inflationary phenomenon is not the same for all households due to the different characteristics of the consumption basket of each household. Based on the ENIGH 2020 income and expenditure survey, we know that in Mexico there are more than 35 million households in our country. 38% of their total spending goes to food and beverages; 18% in transport and communications. For housing and services it represented 11% of total spending. Expenditure in these three items represented more than two thirds of total expenditure.