The News
Sunday 26 of May 2024

Inflation Threatens

Agustín Carstens, head of Mexico's Central Bank (Banxico),photo: Cuartoscuro
Agustín Carstens, head of Mexico's Central Bank (Banxico),photo: Cuartoscuro
On a positive outlook stands the fact that the Mexican economy grew by 2.1 percent during 2016 given that manufacturing is on a roll

Inflation this year is slowly but surely rising in Mexico. The latest report from the National Statistics and Geography Institute (INEGI) placed its April measurement at a 5.62 percent hike, up from 5.42 percent from the latest gauge two weeks ago. Analysts had forecast that it would climb up to 5.58 percent but it was four points higher.

Nevertheless, it is the highest inflation rate since 2009, when INEGI registered a 5.73 rate for April that year when the Mexican gross domestic product plummeted by a whopping negative 6.1 percent. GDP predictions for 2017 are currently put at below 2 percent. Not bad, some economists claim, if compared with many a nation worldwide because even if small, it still means growth.

Yet at Mexico’s Central Bank (Banxico), there is concern because even if the inflationary rise was foreseeable since last January, it has been hiking its inter-bank interest rate which now stands at 6.5 percent, three points higher than its U.S. counterpart. During the year, it has increased from 5.75 in January to the current 6.5 percent. Yet Banxico would like to keep inflation down below 3 percent, a feat which now seems impossible even if electricity prices to industry and business dropped by 0.15 percent.

At the Chamber of Deputies, however, the leaders of two political parties are deeply concerned because even if there is not a runaway inflationary trend yet, the prices of basic foodstuffs have increased accordingly hitting lower income families the hardest, seeing their purchasing power diminished.

National Action Party (PAN) leader Deputy Marko Cortés says PAN economists predict that the national index of consumer prices will definitely keep on climbing, affected both by the peso devaluation before the dollar as well as the harsh blow to economic stability dealt by the President Enrique Peña Nieto Administration on January 1 when the prices of gasoline soared.

“Even before this dreadful decision was made — hiking fuel prices — we pointed out that the Special Tax on Production and Services (IEPS) should be lowered because it was obvious that the price of basic foodstuffs was going to be affected,” he said.

Indeed it did, but President Peña Nieto still went ahead slapping a 40 percent IEPS on fuels as well as increasing several times the price of industrial use of electricity.

“The outlook is very discouraging particularly if the United States increases its interest rate which will affect loans to productive activities,” he added.

Another Chamber of Deputies party leader, Deputy Francisco Martínez Neri of the Democratic Revolution Party (PRD) harshly criticized the increase of electricity of fuels “in such a drastic manner” (from 13.3 to 17.2 percent), saying this will only push up the cost of products and services “which will drastically affect family economics” particularly among the poorer sectors of Mexican society.

Banxico will meet again on May 18 to consider yet another interest rate increase, a move that it says will help control inflation.

Yet on a positive outlook stands the fact that the Mexican economy grew by 2.1 percent during 2016 and given that manufacturing is on a roll, as well as exports, the economy will still grow by at least 1.5 percent. The growth is minimal but it is still growth.

The down side in all this is precisely government finances as it is showing a frail balance and with much of the oil revenue income now gone, the ever increasing taxation is insufficient and the public debt continues to grow.

If Banxico manages to bring inflation down towards the end of the year there’s some hope that 2017 will not look as bad as it does nowadays because the current inflationary trend was not in the plans of Banxico financial authorities headed by Agustín Carstens until next July. No new director has been appointed by President Peña Nieto yet.

What will be the “corrective measures” Banxico will come up with over the next few months is a question in everyone’s mind. And surely the economic think-tank Banxico is working on lowering inflation or at best preventing it from running amok.