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Faced with Relentless Inflation, Mexico's Measures Are Insufficient

Inflation, as we understand, is not controlled by decree or by laws of Congress. It is an economic situation managed in a multifactorial way.

A little more than three months after President Andrés Manuel López Obrador presented the Package against Inflation and Famine (PACIC), the measures seem insufficient for Mexico, now engaged in consultations with the United States and Canada on non-compliance with T -MEC, in its increasingly pointed agreements on the energy sector that do not want to be fulfilled.

Both problems, although they seem to be separate, are linked. On the one hand, the PACIC measures have been implemented one at a time, with decrees according to the sectors involved and by additional agreements of federal agencies. Although in general terms, they were positive actions, the plan seems insufficient to counteract a global inflationary phenomenon. On the other hand, certain decisions were adopted by the Mexican federal government, such as non-compliance with international treaties and its consequent uncertainty in the economic situation. This is because if nervousness is generated among investors, the degree of investment is affected and does not contribute to controlling inflation since the different markets always react to the stability provided by a government and compliance with the legal and respect for the rule of law.

Inflation, as we know, is not controlled by decree or by laws of Congress, it is an economic situation that is managed in a multifactorial way, and therefore, all the actions taken by the federal administration end up having an impact on the exercise of measures such as the PACIC. On the other hand, the international economic situation is out of the hands of the federal government. Today we are entering a global recessive cycle due to Russia's war in Ukraine which has affected many markets, especially in Europe in terms of energy, food, and agricultural products, which have suffered several price increases. Everything has an impact on the situation we are experiencing, including the international community's punishment of Russia, such as limiting the export of its natural gas, which significantly influences Europe and has contributed to the escalation of inflation.

Mexico, through Banco de México, is also not immune to other global increases in interest rates, which have been necessary and ended up having an impact on inflation.

It is true that other conservative measures by the Ministry of Finance to avoid increasing public indebtedness help sustain the country's ratings. Although Pemex has not done so well in the evaluations, which is negative, as it is a high-ranking company with an economic impact on the budget of expenses of the federal government. It helps, however, that debt issuances are controlled, and rates are within appropriate ranges for the current economic situation.

But even with all of the above, the situation is so complex that only with a crystal ball could we guess when inflation can be controlled. It will be difficult until the Russia-Ukraine conflict is resolved, and the latest international tension between the United States and China over Taiwan could be even more severe for economic stability and peace in the world if not resolved. No war is desirable, let alone between the two leading world powers. The problem is that the level of threat is increasing, and this is staggering the international trade in goods, which is another reason for the increase in prices.

If Mexico is ahead in the T-MEC consultations and the federal government changes its perception of its respect for the Rule of Law, the outlook will be somewhat more optimistic. Unfortunately, the weather is uncertain, but trying to make a forecast, inflation is not seen to improve in the remainder of the year, even though, paradoxically, the conflicts help to strengthen the peso in the face of the pressure suffered by other currencies such as the euro and the US dollar.

By Sergio Chagoya, investment expert and business advisory in corporate and regulatory matters.

Source: El Financiero

Sergio Chagoya