It’s not inflation, it’s the drought in Mexico
“Practically the Mexican Republic is dry and that has impacted the production of some agricultural products. There are difficulties in producing goods that require water, that is why the prices of these items are rising,” says Víctor Ceja, chief economist at Valmex Casa de Bolsa.
The specialist assures in an interview that this price increase is temporary, so although there are price increases in avocado, egg and cilantro, they do not perceive a change in trends in the short term.
“In inflation there are two parts that refer to food. The one that refers to drinks and tobacco, and those that are fruits and vegetables, which depend greatly on the environmental conditions and the day of the day. These products had an inflation rate of 21.78% in January and are now at 18.55%, so this item is extremely sensitive to issues of insecurity and drought issues, (but) they also have their cycles,” explains Ramsé Gutiérrez, senior vice president and co-director of Investments in Franklin Templeton Mexico.
Both specialists agree that unprocessed foods are included in the non-core component of the National Consumer Price Index (INPC), and that it is characterized by being highly volatile.
“This component has no impact due to monetary policy, that is, Banxico can do little to control the inflation of these goods, but it is very important to know that if these prices continue to rise, short and medium-term expectations can be affected,” said Víctor. Eyebrow.
In May of this year alone, the prices of tomatoes, serrano peppers, oranges, avocados and poblano peppers rose 11%, 22.4%, 11.3%, 9.11% and 21.9%, respectively, according to data from Inegi.
This week, the United States Department of Agriculture reported that it has suspended inspections of avocados and mangoes in Michoacán until safety issues have been resolved.
The losses for Mexico from not exporting avocado from Michoacán are estimated to amount to 7.6 million dollars a day, according to calculations made with information from the Bank of Mexico (Banxico), the Ministry of Economy, the United States Department of Agriculture (USDA, for its acronym in English).
Pressure on Banxico?
The specialists interviewed agreed that what Banxico has to do is maintain the restrictive monetary stance to prevent inflation expectations from increasing at the end of this year.
Valmex and Franklin Templeton estimate that inflation in Mexico will end the year at levels of 4.5%.
“We see ups and downs for the coming months, it is likely that in this fortnight (the first of June) there will be a rebound, but it will have little weight on the INPC, so the impact will be limited, but that does not mean that other products, such as chicken or beef have an impact. In principle, what you see are ups and downs,” said the chief economist of Valmex.
Pacific 2.0?
Víctor Ceja and Ramsé Gutiérrez ruled out that it is a good idea for the federal government to try to make a new pact with the country’s productive sectors to contain prices, since in the last version it had marginal effectiveness.
The anti-inflation programs had minimal effects, since most of the price increase was imported, added the senior vice president and co-director of Investments at Franklin Templeton Mexico.
“The important thing is to prevent inflation expectations from rising. The trajectory has been positive, with ups and downs, but it is on the right path so that inflation is lower. The goal will not be achieved or the approach to the goal will not be immediate (for Banxico). There is a long time left, but the trend is going there, said the chief economist of Valmex.
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