The inflation tsunami has hit the US, how will it impact Mexico?


High inflation has been consolidated throughout the world, even in the United States, the most industrialized nation, and for Banxico it is already a very relevant problem.

Waves of inflation are sweeping the world right now, and are already threatening the recovery of the global economy after last year’s crash.

High inflation has been consolidated throughout the world, even in the United States, the most industrialized nation, and for the central bank of our country, it is already a very relevant problem. Likewise, the recent figures on this indicator in several of the star players in the world economy are indicative that something is happening.

EU, China, Germany, Brazil, too many matches

During October, inflation in the United States rose again beyond expectations and set new highs not seen in a long time.

The monthly inflation figures indicate that for the tenth month of the year it was 0.9 percent, while at the annual rate the reading was 6.2 percent. Both figures exceeded the expectation of 0.6 percent for the month and 5.8 percent in the case of 12-month inflation.

There has not been such a high inflation reading since 1990 when it was 5.4 percent. These are inflation figures that several generations did not know and are a few points away from reaching levels that we have not observed since 1982.

According to the Fed, the high inflation is due to two main transitory effects: one of them is the price of fuels, a factor that hits almost the entire world; it is feared that the pressures will be greater if demand grows more due to increases in prices. flights before the reactivation and the imminent winter season that could bring lower temperatures than other years.

The other driver for inflation is the supply chain that has been disrupted by the pandemic and factors such as a shortage of microcomponents.

The industry of the country and the world, in general, is struggling to reactivate due to the above, everything indicates that it will be a matter of time, but that is exactly what many wonder, how long? The Fed itself has already said that the phenomenon is unusually transitory, which leaves the door open to an indefinite temporality, apparently the problem could begin to subside until the Fed acts with a rate increase, and hopefully, by then it will not be even higher. inflation.

But the phenomenon is not exclusive to the world’s largest economy, it is also the second-largest global power.

Inflation in China, especially producer inflation, is already very worrying: The growth of consumer prices seems to be under control, but the other side of the coin is that of producer prices.

In October, consumer inflation grew 0.1 percent and 0.7 percent at an annual rate. In this sense, there seems to be no problem.

But, producer inflation rose 13.5 percent annually, higher than the 10.7 percent registered in September; there was no news of such a high inflation rate for Chinese producers since 1995, and it necessarily has effects on the Chinese industry, which is beginning to hit in its production levels and analysts consider that it will be imminent that this level so high pass to the consumer while increasing fears of stagflation in the Asian giant and in the world.

If inflation in China and the United States is a factor of fear for the world, and if it were insufficient, the economic engine of Europe suffers from the same condition.

In Germany, consumer inflation grew 0.5 percent last month, while at the annual rate the reading was 4.5 percent.

The last time that Germany registered such a high annual rate of inflation was in 1993 when it reached 4.6 percent; energy prices had an increase of 18.6 percent and the worst thing is that the weather forecasts are not favorable for the continent, the winter that is coming could be complicated.

High inflation also reached Latin America; our country is an example, but not the only one.

In Brazil, prices increased an average of 1.25 percent monthly and 10.67 percent annually. Although the country has a history of much higher inflation rates and times of hyperinflation, the truth is that a downward trajectory had been reported for several years and has already been interrupted. Precisely the history of the country on the subject of prices, is what worries in the markets.

Brazil cannot afford to let domestic prices rise to a bullish wave from which it would perhaps be very difficult to bring them down.

How will it impact Mexico?

Our country will not be spared from the pressures on the general price levels that are registered around the world.

Above all, because inflation is already hitting our main trading partner, the economy that has the most influence over us, the United States.

For example, according to Pemex data, three-quarters of the gasoline consumed in the country comes from the United States, in that nation only in October energy rose 5 percent. Likewise, gasoline that does not come from abroad has foreign costs necessarily linked to external prices for its components and their valuations.

Perhaps on the energy issue, inflation will not translate excessively to the consumer due to the political issue, which will privilege subsidies before reflecting real costs and prices.

But the increase in prices abroad does reach the country through different sectors, the impact will be inevitable if the pressures are maintained.

The channels of contagion are multiple, but the entire industrial sector is of special concern because its products are the most exported to Mexico.  

Electronic products, other petroleum derivatives such as oils and lubricants, various household goods, and even products from the food sector, will arrive in Mexico with the inflationary effect.

Central banks have the floor

According to the most recent analysis, everything seems to indicate that the time has come for central banks to act.

Although according to the lines of action set by some of the most important institutions, such as the Fed, they may not do so soon.

However, it will be inevitable, both in industrialized and emerging markets interest rates will have to rise, the magnitude will be determined by each country according to its circumstances.


Mexico Daily Post