It will be one or two more years before inflation returns to the target ranges of central banks in advanced economies and that could be the case in Mexico, estimated Daniel Titelman, director of the Economic Development Division at the Economic Commission for Latin America. and the Caribbean (ECLAC).
By mid-2023, inflation in developed countries should already be converging to the target range if supply pressures decrease, as expected, he stressed. And that could be the case for Mexico as well.
Interviewed by El Economista, he observed that the trajectory of inflation in Mexico will also be downward.
Mexico registered a variation of 7.4% in inflation during 2021, he recalled and this year it could be at 4%, so it can be affirmed that the trajectory is downward and that next year inflation will be closer to the target.
When he talks about the supply pressures that have arisen worldwide, he refers to the scarcity of goods, the rise in transport and exchange rate devaluations.
From Santiago de Chile, at ECLAC headquarters, he suggested a coordination of monetary policy with fiscal policy to prioritize growth and at the same time face inflationary pressures.
The world and experience are showing that during the pandemic all the countries that have target inflation schemes sought to reconcile growth with meeting their inflation targets.
ECLAC proposes that central banks combine all the instruments they have to reconcile the task of facing inflationary pressures, while promoting growth.
This suggestion is addressed even to central banks that have a single objective, that of inflation, as is the case of the Bank of Mexico.
Beyond the fees
The ECLAC economist explained that the interest rate is only one of the many monetary policy instruments available to central banks.
They also have reserves, with the use of reserves and the exchange rate and a great diversity of macroprudential regulation instruments, he explained. So the recommendation is to use a combination of these instruments to reconcile their task of dealing with inflationary pressures, while promoting growth.
Each central bank has responded based on the internal conditions of each economy, the impact of the external situation, domestic demand, and prevailing liquidity.
More than comparing the interest rates of each country, or the speed with which they increased, it is important to see the coordination that fiscal and monetary policies have had, he insisted.
Strengthen the treasury
The ECLAC expert warned that the revised GDP expectation for Mexico, which is at 2.9% for this year, represents a return to the normal growth trend.
To accelerate the dynamics of growth and make it sustainable, he suggested strengthening public and private investment and directing projects to productive sectors that support the environment.
He says that the fiscal situation in all the countries of the region is challenging, since before the pandemic they had been growing very poorly, by 0.14%, on average, from 2014 to 2019, and fiscal policy must continue trying to support growth.
We are not saying to raise VAT, which is regressive, but rather to charge more to the richest population and to corporations.