Mexico Is Losing Inflation Fight, Analysts Say
Francisca Fernandez Martinez recalls that just a few years ago she sold two pounds of bananas for 45 pesos. Today, she charges nearly double for the same amount--80 pesos, the equivalent of 34 cents.
Fernandez, who runs a fruit and vegetable stand in a downtown market, said she would like to increase the price even more because all her expenses are going up. But the price of bananas, like other basic commodities, is controlled by the government.
At a nearby taco restaurant, Maria Teresa Ramos complains that not only prices for food have climbed, but also for clothing and housing. Rent, she says, has gone up the most, rising nearly 60% from last year to $23 a month this year. Since she and her husband work at jobs that until recently paid the minimum wage of only $4.50 a day and now is $5.20, rent puts a hefty strain on their budget.
Mrs. Ramos worries about inflation “because it affects everything” and says she expects still higher prices in the future.
So do financial analysts, who predict that Mexico’s inflation rate this year will not drop much below the 59.2% of 1984. They see little likelihood the government will reach its goal of a 35% rate.
“Inflation is still sticking up there. It’s higher than it ought to be,” says Cynthia Powell, an economist at Chase Econometrics in Bala Cynwyd, Pa.
Abel Beltran-del-Rio, director of Diemex-Wharton Econometrics in Philadelphia, says the Mexican government wants to reduce the inflation rate but “there are so many pressures” keeping prices up.
He projects a 1985 inflation rate of about 52% and Powell says it could reach 58%. In comparison, analysts forecast that inflation in the United States this year will match--or even better--the 4% of 1984.
An economist in the Mexican government said that while the government is officially holding to its 35% forecast, the price increase could wind up in the mid-40s or the mid-50s, depending on what inflation-fighting steps are taken in the second half of the year.
This economist, and even those interviewed in the private sector here, spoke on condition they not be identified. Some said they didn’t want to anger government officials with their views.
Has Foreign Debt
Mexico, saddled with a foreign debt of about $96 billion, has brought its inflation rate down from 98.8% in 1982 in belt-tightening moves widely praised by the international banking community. Some of the measures were imposed as part of a financial aid package the government worked out with the International Monetary Fund.
But in January, prices jumped a sharp 7.4%. Javier Murcio, an economist at the forecasting firm of Data Resources in Lexington, Mass., says the increase “scared a lot of people” and raised fears inflation was out of control.
Since then, price rises have moderated, and analysts are watching to see what decisions Mexico makes in the months ahead to ease inflation pressures.
A recently announced government decision to increase the minimum wage by 18% should help somewhat to restrain price increases.
Angel Olivo Solis, president of the Labor Congress, said the wage increase “doesn’t satisfy us but we accept it because we are conscious of the crisis the country is undergoing.”
In advance of the announcement, analysts had said any increase should be no more than 15% to 20% to help contain inflation. The minimum wage was boosted by 30% in January. Higher wages generally translate into higher prices as employers try to make up for the additional labor costs.
Economists also forecast an easing of government spending--considered a key factor in keeping prices up--after the July 7 elections for Congress and the governorships of seven of Mexico’s 31 states. The opposition National Action Party has mounted an energetic campaign in the northern part of the country against President Miguel de la Madrid’s Institutional Revolutionary Party, which has never been out of power.
Many analysts see signs--although they haven’t been able to come up with a price-tag--that the government has maintained a strong level of public spending in advance of the elections. The public sector deficit was 2.2 trillion pesos in 1984, representing 7.4% of the gross domestic product. The U.S. red-ink was $185.3 billion for the fiscal year that ended Sept. 30, or 5.1% of the gross national product, which is roughly equivalent to gross domestic product.
Some analysts also say the government may adopt measures allowing more foreign goods into the economy, putting competitive pressures on domestic firms to lower prices.
Other inflation-fighting measures they recommend would slow the rise in the amount of money that flows into the economy and restrain increases in government-set prices on basic commodities and in prices of goods produced by government-owned corporations.
Such steps would also work to slow down the economy, which has been growing at a faster rate than expected. Last year’s pace was 3.5%, after adjustment for inflation, and economists say the performance could be even stronger this year.