Connect with us

Hi, what are you looking for?

Major Trade Flow – Investing and Stock NewsMajor Trade Flow – Investing and Stock News

World News

Like Its Irresponsible Northern Neighbor, Mexico Is Also Suffering from Inflation

Along with the United States’ numbers, we also now have Mexico’s estimated Consumer Price Index inflation growth rate. For June 2022, Mexico experienced 7.99 percent price inflation year over year. This is the biggest number Mexico has seen since the volatile 1990s and the 2001 recession.

This also marks the twenty-fifth straight month with CPI inflation above the Banco de México’s 3 percent inflation target. Indeed, Mexican inflation hasn’t been below 3 percent since May 2020 (and then only barely, at 2.84 percent). Mexico’s CPI has been about double or greater than double the target rate since April 2021.

Source: Organization for Economic Co-operation and Development Main Economic Indicators database (Consumer Price Index: All Items for Mexico, OECD descriptor ID no. MEXCPIALLMINMEI), via FRED, accessed July 18, 2022.

During this period, unsurprisingly, wages in Mexico have not kept up with the estimated inflation. Manufacturing wages illustrate this. Though the FRED database has not updated Mexican wage numbers since April, we can see a steady decline in real manufacturing wages in Mexico from January 2021 to April 2022. In April 2022, Mexico saw an estimated 6.08 percent inflation rate and a 0.65 percent decline in manufacturing wages. Excluding the seeming outlier months of March and May 2021, Mexican manufacturing wages have not kept pace with inflation in the slightest. It doesn’t take a rocket scientist to notice that this is not a promising trend for the average Mexican, and it is certainly reason for lower- and middle-class people to be concerned. Like the United States, Mexico’s unemployment rate has been below 4 percent all year, but what good is employment if each month is met with falling real wages? A falling real wage is a falling standard of living—it’s growing impoverishment.

Source: Organization for Economic Co-operation and Development Main Economic Indicators database (Hourly Earnings: Manufacturing for Mexico, OECD descriptor ID no. LCEAMN01MXM661S), via FRED, accessed July 18, 2022.

There seems to be only one silver lining, though it is only one of comparison. Despite Mexico’s not being known for its sound monetary policy, its inflation rate all year has been below that of one important country—the United States. Yes, the year 2021 has seen higher inflation rates in the United States of America than in the United Mexican States. Now, as can be seen in the chart below, Mexico’s trend has more or less mirrored that of the US. But it seems somewhat noteworthy that the country that saw double-digit year-over-year inflation as recently as 2000 is behind the United States in that exact category this year, and at a growing rate. Another win for American exceptionalism!

Source: Organization for Economic Co-operation and Development Main Economic Indicators database (Consumer Price Index: All Items for Mexico, OECD descriptor ID no. MEXCPIALLMINMEI), via FRED, accessed July 18, 2022; and US Bureau of Labor Statistics (Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL]), via FRED, accessed July 18, 2022.

There might be another silver lining, at least in principle. Unlike the United States, Mexico has been much more proactive in raising interest rates. This year alone, rates have gone from 5.50 to 7.75 percent. That being said, the CPI and the interest rate simply appear to be mirroring each other. Increases in the interest rate do not seem to be lowering inflation, but at least Mexico has been more ambitious than the United States, whose leaders at the Fed do not even seem to be trying to stop inflation.

Source: “Mexico Central Bank key rates,” countryeconomy.com, accessed July 18, 2022.

As with its friendly neighbor to the north, Mexico’s price inflation is not transitory. M2 has steadily increased over the years, including a noticeable covid-era jump. As unfortunate as this situation may be, it was far from unpredicted. Readers of this site understand the relationship between monetary inflation and price inflation, so I imagine this is of little surprise to them.

Yet many in charge in both countries are perplexed—or at least are posturing as being perplexed. It will be interesting to see what becomes of this inflation problem in the coming months, in Mexico and the United States, as well as in the world en bloc. Mexico is not as hesitant, it appears, to raise interest rates as the United States, but as we have seen, raising rates has not really reigned in inflation so far. Given how interconnected Mexico and the United States are, a crisis in the United States will almost surely cause a crisis in Mexico, too, regardless of how Mexico handles its own price inflation. But at least all this reckless monetary policy resulted in fewer covid cases! Oh wait

Click to comment

Leave a Reply

Your email address will not be published.

You May Also Like

Politics

Guest post by Leo Hohmann For safety reasons the structure has been completely demolished.’ – Georgia Bureau of Investigation The Elbert County Georgia Sheriff’s Office...

Economy

2022 Election Biden Is Very Unpopular. It May Not Tell Us Much About The Midterms. By Nate Silver Jul. 15, 2022, at 6:00 AM...

Editor's Pick

Humans have a natural avoidance of pain. And it’s no different in trading. Most traders fear losses more than they enjoy their wins. After...

Politics

(Guest post by Leo Hohmann printed with permission ) New insight on Klaus Schwab’s ‘You will own nothing and be happy’: How AI and...