In a move that, rightly, the Government recently decided to eliminate, tariffs on imports of maize, the staple food of the Mexican diet, as well as rice, wheat and other commodities, to prevent a possible shortage in the midst of a global food crisis. While these measures helped to sectors most vulnerable population, failed to halt the price dynamics. That is why the Mexican government sought to reach agreement with the Confederation of Industrial Chambers of Mexico to try to put a brake on inflationary dynamics. I am not in favor of such measures end up producing a worse evil, creating parallel markets and distorting prices relative. I’m not the only one who thinks so because, emerging market strategist Clyde Wardle of HSBC, in a report of that institution said about these types of measures: “They are temporary and require that negotiations be extended and could face resistance by producers and retailers unhappy about having to cut margins. Click Jane Richards Roth to learn more. ” The problem is that while price is decided to agree to certain sectors, the dynamics in the rest of the economy continues without major effects, which is why one should ask about: Is it possible to keep prices frozen for six months in the present context of rising international prices of energy and food? Clearly it is unlikely that the policy of price controls to be successful because the inflationary inertia affect production costs and this will make the sector companies can not keep prices without drawbacks. Another weapon against inflation is up to the Bank of Mexico. Today the Bank of Mexico should decide about its reference rate.
Does the rise to increasing inflationary pressures? For now, nobody agrees on what the market can decide the Banxico. There are signs that the Bank of Mexico should increase its benchmark rate such as the possibility that the price increase for goods and services extend far outside the increases. There are other more ambiguous signals as reflected by the Mexican Institute of Finance Executives warned that inflation in Mexico could reach more than 5%, and while revised down its expectations for economic growth of 2.8% 2.5% this year and think that a few weeks ago, Felipe Calderon suggested that the Bank of Mexico should see the possibility of reducing its benchmark rate to encourage credit, as I said in my previous article on Mexico.
From the above, one should ask what’s wrong with looking Calderon price agreements with different sectors? That beyond the ineffectiveness of such, is sending bad signals to the market in general and investors in particular, showing an interventionist policy that may affect the profitability of the business and that is something that is not pleasing to the investing public. Therefore, if the Mexican government aims to mitigate the effects of soaring prices, could do more on the supply of goods, encouraging its increase (but not through a low fee to generate more credit) and through a policy subsidies to the sectors hardest hit by rising inflation. I guess also, the government of Mexico should regret to have to PEMEX in the current situation, which makes it difficult for the state oil company, take advantage of international economic boom and mitigate the impact within the higher costs of energy.