More pressure on public finances and a limited effect: the chiaroscuro of López Obrador’s plan against inflation

With an agreement with the companies to maintain the prices of the products that make up the basic food basket, increased grain production and exemption from charges on the importation of fertilizers, the Government of Mexico intends to tackle inflation that already exceeds 7.7% annual rate, the highest in the last 21 years. The plan presented by the Executive this Wednesday, with the backing of the main business chambers and players from the private sector, aims to stop the escalation of prices by up to a third and even promises that the effects will begin to be seen in the pockets of the Mexicans in the next 15 days. However, specialists prefer not to throw bells on the fly. The experts consulted by EL PAÍS warn that the strategy proposed by the federal administration will have limited scope, will depend on the will of the companies and will imply greater pressure on public finances at the end of the year.

Among the favorable points of the initiative, admits Sofía Ramírez Aguilar, director of the collective of economists Mexico, how are we doing? of the intention to stop in the short term an escalation of prices that for some families is already unsustainable in the country. However, the spokeswoman for this organization also warns that the emerging landing of said plan will imply the budget cut of other areas of the public budget, most likely, the area of ​​physical investment that the Government had planned for the rest of the year.

The Mexican government has replicated the subsidy program that it has been applying to gasoline for a couple of months. In the food sector, it covers a total of 16 measures in force over the next six months, including an increase in grain production of up to 4.8 million tons, freezing of tolls on highways and railways, as well as the exemption in the collection of the ammonium sulfate tariff as a fertilizer, among others.

The director of the nonprofit research center points out that the price pact was closed with the big businessmen of Mexico, but the enormous constellation of medium and small companies was left aside, who will not be able to keep up with the strategy if they do not get the cheapest inputs or items. “I don’t see how prices are going to drop so sharply and in such a short time, with such a short-range program,” she concludes.

Rodolfo de la Torre, director of Social Mobility at the Espinosa Yglesias Study Center (CEEY), points out that he receives the government plan with “moderate skepticism.” Far from the immediate forecasts of the Federal Administration, the director attached to the CEEY clarifies that the measures will begin to take effect in the next agricultural production cycle that begins in June, therefore, their effects will be seen towards the end of 2022. “A great absence within the plan is not having increased monetary transfers to the poorest population, if there had been an emergency compensation so that poor people could buy more expensive products, I believe that the plan would have been more effective”, he affirms.

The specialist emphasizes that one of the main problems of the strategy is that the commitment to maintain the prices of the 24 products of the basic basket was only signed by a hundred companies, when in the country there are millions of medium and small companies that they are hardly going to be able to continue enduring the escalation of prices. “Price agreements are voluntary and have a very limited scope, they refer to a group of companies that have a relatively small impact on national prices. In the end, the effect will end up being diluted”, he specifies.

Marco Oviedo, an independent economic analyst, explains that the Executive’s plan is a battery of “partial” measures and even some that are not very consistent. The clearest case is that of guarantee prices that do not make sense to impose in an inflationary environment. On the other hand, the effect of price control by the Government helps, it is not something new. “Some measures could help at the margin, such as the reduction of tariffs or support in some inputs for the producer. The effect of the program will be very limited. In the end, it is the monetary policy that must compose the trend of inflation” he comments. The expert points out that it will be difficult to see quick results: “Probably, by the third quarter we can see some progress,” Oviedo ditches.

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