How is the fight against inflation going… is PACIC a placebo?

Is Mexico a success story in the fight against inflation? Here the National Consumer Price Index (INPC) is 8.16%, until the first half of July. It is lower than that registered by the United States, Spain, England and almost all the countries of Europe, with the exception of Switzerland (3.4%); Norway (6.3%) and Sweden (7.3%).

Is it time to sing victory? The short answer is no, although it is worth shouting and dancing the touch down. There are still many battles to be fought, because the war against inflation will be long. We have the second half of 2022 and all of 2023 left, in the best of cases. We do not know how many inflationary surprises will appear in the coming months. We know that health, geopolitics and climate change have some rabbits in their hats. Some of those “rabbits” will jump and cause prices to rise.

It is worth celebrating because in terms of inflation, Mexico has a behavior more similar to that of developed and solid countries than that of emerging and/or volatile countries. The celebration must be prudent because the 8.16% inflation includes price increases in the food basket that are around 15% average. Prudence obliges, even if it is out of empathy with the millions of people who have seen the size of the market bag they can afford shrink. In one year, potatoes have risen 59%; onion, 53%; the egg 37%; orange, 36%; the tortilla, 12%…

The story can be as important as the reality. President López Obrador takes advantage of the price indices registered in Mexico until mid-2022 to criticize economic orthodoxy and neoliberals. He attributes the relative success of Mexico to his heterodoxies, is he right? Frankly no, if it were a question of breaking with the neoliberal lessons, Argentina and Turkey would be giving lessons to the world. It is not the case. They have inflation of 70 and 78% respectively. Venezuela has the cheapest gasoline in the world, 10 cents per liter, but it brings inflation of more than 100% per year. In 2018, it was 130,000 percent.

In Mexico, heterodox measures such as the multimillion-dollar gasoline subsidy work because they are inserted into a macroeconomic policy where there are orthodox anchors that we could well call neoliberal, among them respect for the autonomy of the Central Bank, economic openness regulated in trade agreements and the firm fulfillment of commitments related to the balance of public finances. The tightening of the nuts on public spending is defined in López Obrador’s language as republican austerity or Franciscan poverty. It is not out of tune with the lessons of the Chicago School or with the IMF recommendations of the 1990s.

How to evaluate what Mexico has done? The Program to Combat Inflation and Famine (PACIC) was announced on May 4. At that time, the consumer price index at the end of April was 7.68%, two and a half months later, inflation is 8.16 percent. It can be said, like the Secretary of the Treasury, that without this program, inflation would have gone up to over 10 percent. It can also be argued that it has had a placebo effect. An investigation by Ana Karen García, of El Economista, shows that of the basket of 24 products that was intended to shield against inflation, 16 have risen more than 10% and six register increases below inflation, including beans, rice and sugar.

Of the 16 measures announced on May 4, the one with the greatest impact has been the gasoline price subsidy. It will cost 430,000 million in all of 2022, according to the Treasury calculations. She alone contributes by lowering two percentage points to inflation, according to the calculations that the SHCP itself has made.

In the morning report of Tuesday, August 2, it is significant that no information was given on some heterodox measures announced in May, for example, increasing road safety, reducing costs and clearance times in customs and cargo terminals in ports. . By including them among the measures to contain the rise in prices, we recognized that insecurity is inflationary, as is inefficiency in customs and ports. From the silence, we can deduce that there are no tangible results here.

An interesting vein of the policy to combat inflation and famine is in the work with the production and acquisition of food. Mexico has to increase grain production and raise productivity in the field, in addition to reducing the water footprint of our agricultural products. For this, around 50,000 million are being dedicated in the PACIC, according to the information provided by Rogelio Ramírez de la O. That includes 5,200 million for the purchase of fertilizers, 14,000 million in support of small producers and 11,000 million for entrepreneurs. . It is worth noting that support for food producers is barely a tenth of what is established as subsidies for gasoline and electricity. The question is, could not the 574,000 million be distributed in another way, more to food and less to fuel?

Note: I do not include in the total, the 29,000 million dedicated to planting trees, because it is not clear how these resources contribute to combating inflation or famine.

[email protected]

Luis Miguel Gonzalez

General Editorial Director of El Economista


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 Guadalajara newspaper PÚBLICO, and has worked for the newspapers Siglo 21 and Milenio.

He has specialized in economic journalism and investigative journalism, and has carried out professional stays at Cinco Días in Madrid and San Antonio Express News, in San Antonio, Texas.

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