Will El Buen Fin help contain inflation?

This year will mark more than 10 years of the Good End, but this time in an environment of high inflation. Will it be possible to lower prices with this aggressive “discount party”? According to the data we have, its incidence will be lower than what the government and business chambers presume.

According to the study, do prices really drop during the Good End? by Raymundo M. Campos Vázquez and Eduardo M. Medina Cortina, published by Trimestre Economico (number 334, April-July 2017), establishments usually prepare to a large extent to host such an event, raising prices by an average of 2% between the months of September to October, and compensating for it with additional increases towards the end of November or the beginning of December around another 2%. 50% of the products on the market usually participate with an average discount of 15%, which gives an approximate decrease of 7% in the total number of products and services offered. About 130,000 establishments participate and about 20% at least, is done online (although this percentage rises exponentially every year).

What effect do all these numbers have on inflation? In the second half of November we will have a spectacular decrease, but -as has been mentioned- we must discount an average increase of 2% in the previous weeks and between 1 and 2% in the following weeks. The figure disbursed this year can reach the whopping amount of 300 billion pesos. An amount that then decreases at Christmas? Probably purchases are made in advance, which are then no longer made during the holidays (around 10% pay for their purchases with the bonus in advance).

There is no detailed empirical study of the effect of Black Friday in the United States on prices. It seems that it reaches higher levels than the Mexican ones, but it is restricted to certain product lines, especially electronics. This year also, both in the United States and in Mexico, inflation is around 9% and core inflation is around 9%, so it will be especially interesting to analyze whether the Good End helps to deflate the inflationary spiral. The result at the end, added to the increases before and after the Good End, as well as the decrease in spending during the month of December, we think that its effect will be limited.

The government has opted for orthodox measures to control money in circulation by raising the interest rate. He has preferred not to use mechanisms such as the cut of the “Quantitative Easing” or the reduction of the “short” (the cash in the economy), measures that Guillermo Ortiz was more fond of, when he was Governor of the Bank of Mexico. In other countries, a fixed exchange rate or a floating band (“dirty” measure) is established to reduce inflation that comes from abroad. Salinas de Gortari went to it with the disastrous effects of the December mistake, but in a very few years he lowered inflation from 170% to single digit figures. Another of the measures that he used was to eliminate or substantially reduce tariffs, so that domestic prices had to fall in the face of the onslaught of foreign companies, especially Chinese products, accompanied by high interest rates from credit institutions.

The Good End, in our opinion, may temporarily lower the inflation rate by a few tenths, but frontal and comprehensive attack measures are needed, beyond interest rates, and some ornamental elements, as PACIC I and II have done. We are facing an inflation caused by supply and demand shocks, so the measures must go in the same directions to be successful.

*Xavier Ginebra Serrabou has a Master’s and Doctorate in Competition Law, Research Professor at the Faculty of Law of the Universidad Panamericana and level I member of the National System of Investigators.