The persistent inflationary pressures will continue in 2022, in which a combination of domestic and external components is expected that will make it difficult for inflation to return to the target range of Banco de México (Banxico), of 3% +/- 1 percentage point, in addition to the fact that it will hit the pockets of Mexican consumers in an economy that is still weak, analysts warned.
“There is a global component to inflation. It is high in many countries, but there are also domestic components that make it different between countries (…) it was thought that it could be something temporary, transitory, but this narrative has lasted a long time, ”said Carlos Capistrán, chief economist for Mexico and Canada from Bank of America, during their participation in the Economic Outlook 2022 seminar, organized by ITAM.
The economist explained that, among the external elements, the supply shocks that were generated worldwide stand out due to the reactivation of the economy after the confinement that was carried out in 2020 to avoid contagion by Covid-19.
This has led to greater demand – particularly in countries like the United States – but with the appearance of the new Omicron variant, supply and demand at a global level may be further affected.
In this sense, Gabriela Siller, from Banco Base, pointed out that inflation will continue above Banxico’s goal and it could be until December when it converges to the objective; However, he did not rule out new pressures due to the prolongation of bottlenecks in the supply chains, the volatility in the prices of raw materials, as well as the reactivation in the service sector, both globally and nationally, in this last case.
In the case of Mexico, Carlos Capistrán explained that there are local supply shocks that have been generated by various reforms (such as labor and pension reforms), increases to the minimum wage above inflation, as well as the lack of greater fiscal stimuli in the middle of the crisis.
Luis Pérez Lezama, director of Economic Research at Saver ThinkLab, for his part, pointed out that the way of measuring inflation should be updated, since the basic basket does not consider some products that, for example, in recent years have become indispensable , such as antibacterial gel and Covid tests.
“The indicators do not reflect all the expenses that families make. In addition, family inflation is not measured by anyone, each family has expenses whose price increases exceed inflation. There is the ghost of what the true inflation is, “he said.
The impact of inflation can be observed, he added, through the loss of purchasing power. In this sense, at Saver ThinkLab they calculate that in 2021 between 25 and 30% of purchasing power was lost.
“The central bank is disappointed. He faced the pandemic, but it does not mean that facing it is synonymous with success. The monetary policy did not work and it is observed in the high levels of inflation. They underestimated price formation since 2020, “he said.
The biggest increase for a year-end since 2000
At the end of 2021, the National Consumer Price Index (INPC) presented a monthly increase of 0.36% while, compared to December 2020, the increase was 7.36%, according to Inegi.
Although the data was lower than expected, 7.51% according to a Reuters poll, it was the largest increase for a similar month since December 2000, when inflation closed at 8.96 percent.
Goods continue to be the biggest pressure. In December, they showed an annual increase of 7.40 percent.
Inside, food, beverages and tobacco became more expensive 8.11%, while non-food merchandise 6.61 percent. For their part, services presented an inflation of 4.30 percent.
The foregoing led to underlying inflation to 5.94%, which eliminates from its calculation goods and services with volatile prices and is what the Governing Board of Banco de México considers for its monetary policy decision.
“Inflation at the end of the year was 7.36%, marginally lower than the 7.37% in November and below expectation. However, it is not good news since the underlying continues to rise, reaching 5.94%, a sign of the persistence of a more inertial and even structural problem, “Jonathan Heath, deputy governor of Banxico, posted on Twitter.
Non-core inflation, meanwhile, presented an annual variation of 11.74 percent. This was explained by the increase in agricultural prices of 15.78 percent. Within this, fruits and vegetables became more expensive 21.73% and livestock 11.11 percent.
Meanwhile, energy and tariffs authorized by the government showed an increase of 8.68 percent. Energy, on the one hand, became more expensive 11.50% while rates 2.30 percent.
The hikes that most affect the pocket of Mexicans
1.- More expensive tacos
Goods were one of the items that put the most pressure on inflation. In December, prices increased 7.40% annually. In the interior, in the food part, one of the most important increases was that of corn tortillas, of 17.21% per year.
In the area of medicines and devices, in the midst of the pandemic, the greatest increase occurred in lenses, deafness devices and orthopedic devices, with 9.15%, while expectorants and decongestants, which are used to treat coughs and colds, became more expensive 7.19% annually.
In the section of furniture and household appliances, the greatest increase was in mattresses, with 10.90 percent. Meanwhile, products for minor home repair increased their price by 14.45 at an annual rate.
2.- Flights through the clouds
Services were one of the most affected economic activities during the confinement and although they are beginning to recover, prices registered an annual increase of 4.30% in December. Within this category, the greatest increase occurred in air transport (62.95%), while package tourism services increased by 19.99%, and hotels by 9.03 percent.
In the medical part, the highest price increase was observed in dental consultation and prosthetics, with 5.53%, while hospitalization for childbirth rose 4.90% and general hospitalization 3.99 percent.
In the case of entertainment, cinemas presented an increase in their prices of 8.56%, while the services of loncherías, inns, torterías and taquerías did so in 8.35%, on average.
3.- The spike effect raised the cost
Fruits and vegetables averaged an annual increase of 21.73% last December. Within this category, it was observed that the generic that had a greater increase, and that is widely used by Mexicans for their sauces, was the green tomato, with a rate of 91.05%, while the lemon, another of the favorites for Mexican dishes, it increased its price by 90.12 percent.
On the other hand, the serrano chili, also an essential ingredient for sauces, had an increase of 68.01%, while the poblano chili of 64.72% and, other fresh chilies, of 36.70%.
4.- Christmas dinners with pork and beef, a luxury
In the case of livestock products, inflation reported in December was 11.11% per year. Within this category, the greatest increase was presented in beef, which became more expensive 15.52% compared to December of last year. Pork meat, for its part, increased 12.46%, while beef offal 9.48 percent.
On the fish and shellfish side, shrimp increased by 11.97%, while fish by 8.92% and other shellfish by 14.40%.
In the case of chicken, the price increase was 8.75%, and that of egg was 3.69 percent.
5.- Domestic gas, without respite
The recovery in oil prices, after their drastic fall in 2020, led to energy prices increasing their price, annually, by 11.50 percent. In the interior, natural domestic gas was the one that reported the highest increase, with 28.44% annually, while LP 6.87 percent.
Premium gasoline, on the other hand, increased by 22.07%, while magna by 13.98 percent. Electricity became more expensive by 5.92 percent.
6.- Authorized rates, with meager increases
The rates authorized by the government showed an annual increase of 2.30% in the last month of 2021 and although all its components showed increases, these were to a lesser extent compared to generics from other items.
The highest price increase that was registered was that of vehicular procedures, with 4.42% per year, while the fees for water supply rose 4.06 percent.
Meanwhile, toll roads increased 3.56% and the issuance of public sector documents 3.23 percent.
Collective transportation rose 2.07%, while taxi 2.06% and parking 1.17 percent.
Regarding the urban bus, it increased 0.84% and the metro 0.58% in its annual measurement.