Inflation in Mexico is one of the highest in the Americas due to the coronavirus pandemic

28/09/2020

The coronavirus pandemic affected several fundamental aspects of the daily development of the world, including the economy. According to the National Consumer Price Index of the National Institute of Statistics and Geography (Inegi), in Mexico, it reached such a degree that it now presents one of the highest inflation levels in the entire continent.

Mexico's year-on-year inflation remained above the official central bank target in the first half of September.
Mexico's year-on-year inflation remained above the official central bank target in the first half of September.

In order to determine this data, it was necessary to focus on the exchange rate depreciation, the decrease in production, and the distrust of companies, among other factors.

According to an analysis by the newspaper El Universal, the accumulated inflation between March and August 2020, that is, during the six months of the coronavirus pandemic in Mexico, was 0.91%.

At first, it reported, it had lost strength, but that was only during the first weeks of March, the moment when a pandemic was declared. The figure becomes relevant when compared to the same period but last year. At that time, Inegi reported 0.57% inflation.

Although it is not the highest in the Americas, it is below a few countries such as Venezuela, a country that faces hyperinflation of 500%, according to official data, or Suriname which had 33.60%, among others like Argentina, Uruguay and Peru. Mexico's 0.91% means it is four times higher than Brazil's and twice as big as the United States and Chile.

Alfredo Coutiño, director for Latin America of Moody's Analytics, said in an interview with journalist Tláloc Puga that this situation would be linked to the high volatility of the peso and a strong fear of the impact of exchange rates.

He also added as part of these reasons, inflation shot up because the consumption of goods and services was lower than supply, because of government transfers and because a large part of purchases in the country are made in the informal market.

The state with the highest inflation figure is Chiapas with 3.43%, while in Nuevo Leon this number did show a drop in prices by 0.05%.

According to the Reuters news agency, Mexico's inter-annual inflation remained above the official goal of the central bank in the first half of September, which could force the monetary entity to decelerate the rhythm of cuts to the key interest rate.

The consumer index registered a rise of 4.10%, compared to 4.11% in the second half of August, according to figures released by Inegi. According to a Reuters survey, analysts anticipated inflation of 4.05%.

The Bank of Mexico (Banxico), which has cut the key rate by 375 basis points since August last year to its current level of 4.5%, has a permanent inflation target of 3% +/- one percentage point.

Banxico would cut the benchmark interest rate again in its monetary policy announcement later on Thursday. After five consecutive reductions of 50 bp, on this occasion, the reduction in the cost of financing would be 25 bp in view of the rise in local inflation, according to a Reuters survey.

Core inflation, considered a better parameter to measure the trajectory of prices because it eliminates products of high volatility, registered a variation in its annual measurement of 3.99%. In the first 15 days of September, consumer prices increased by 0.16%, while the underlying index showed a rate of 0.17%.