When will inflation end? That beast is alive and deserves a less ambiguous adjective than “temporary” or “transitory.”
In Mexico, the consumer price index rose 1.14% in November and registered an annual increase of 7.37. It’s speeding up because it was 6.24 in October. In November 2020, the monthly increase was 0.08% and the annualized increase was only 3.33 percent.
Why is it said to be a global problem? Inflation is at 29-year highs in Germany. Its level of 5.2% is the highest since 1992, those were the times when pieces of the Berlin Wall were sold there and the official currency was still the Mark. In the United States, you also have to go back to the 1990s to find a similar record. The 6.2% they now have is the highest since 1990. At that time, Sinéad O’Connor’s Nothing compares to you sounded on all radios.
In Brazil, inflation has already passed the 10% mark and forced the central bank to put the hand brake on: it raised interest rates by 150 basis points. It left them at 9.25% and paves the way for further increases in the coming weeks. Projections indicate that interest rates in 2022 will be between 11 and 12 percent. “The committee will persist in the tightening strategy (of monetary policy) until the disinflation process is consolidated and expectations are anchored,” says the Bank of Brazil in a statement.
We have that the rise in prices worries the International Monetary Fund, the European Central Bank and many international organizations, “it is one of the greatest threats to the economic recovery in 2022”, they say. Why? Because it is a factor of uncertainty and is forcing very aggressive monetary policies to be implemented. For Mexico, one of the greatest risks is in the decisions made by the United States Federal Reserve.
It is a fact that the Fed will raise rates in 2022. The questions are when and how much. If Mr. Powell becomes a hawk and fierce against inflation, for example with aggressive rate hikes, he will put pressure on the peso’s exchange rate against the dollar. The rate hikes in the United States are sources of concern because they will mean an increase in the cost of servicing the debt of Pemex and the Federal Government. A movement of only one percentage point weighs tons in the cash of a company, like Pemex, which owes 113,000 million dollars.
Beyond what the Central Bank of the United States does, inflation worries because it hits the most vulnerable groups: the biggest price rises are taking place in the products of the food chain. In some households, around 50% of income is spent on buying food. For the middle classes, the increase in the price of beef or chicken, or eggs is also a cause for concern. These are double-digit increases so far this year. In northern Mexico, a topic of conversation and concern is the increase in the price of electricity. No more subsidized summer rate. The light registered increases of 24 percent.
Can inflation generate social protests? It happens sometimes. The Arab Spring of 2011 “coincided” with a time of sharp increases in the price of wheat and bread. Now, food prices in the world are at levels similar to what they were at that time. According to the FAO, the world dairy price index has risen 19% in the year; that of cereals, 23%; that of meat, 17.6% and that of sugar, 40 percent.
When will inflation end? Analysts are looking closely at the production of chips and the standardization of containers that move cargo in ports. At some point in 2022 these will cease to be a topic. It will not necessarily be the end of the price hikes. Also weighing on global inflation is the oligopolistic structure of many relevant markets, for example steel and medicines. Who said that beast would be transitory?
lmgonzalez@eleconomista.com.mx
Editorial Director General of El Economista
Safe
Degree in Economics from the University of Guadalajara. He studied the Master of Journalism in El País, at the Autonomous University of Madrid in 1994, and a specialization in economic journalism at Columbia University in New York. He has been a reporter, business editor and editorial director of the PÚBLICO de Guadalajara newspaper, and has worked for the newspapers Siglo 21 and Milenio.
He has specialized in economic journalism and investigative journalism, and has made professional stays at Cinco Días in Madrid and San Antonio Express News, in San Antonio, Texas.