EconomyInflation, an enemy or an ally?

Inflation, an enemy or an ally?

(Expansion) – We are going to break taboos on the economy. It is commonly thought that inflation represents a bad omen for the entire economy, a stereotype has been created that an increase in the price level will harm the country; however, under that argument is when the economies are shipwrecked or it is as if they were lost in the Bermuda Triangle.

In order to understand what inflation is, we first need to know that it is not our worst enemy; What’s more, it could become our best ally if we really understand its behavior and the strategies that allow us to profit from it.

Let’s start by identifying that inflation is known as the generalized and constant rise in prices, it can be subjacent, disinflation, deflation, reflation and even the newest conception that is reduflation; all concepts refer to a reduction in prices. And no, I am not referring to a conundrum where lowering prices is the key to improving the economy.

Currently, Mexico has been presenting a continuous increase in prices, and today it is more than 8%, far from the 3% objective of the Bank of Mexico; however, internationally it has been recognized that the Mexican peso is one of the most stable currencies in the world, but how is that possible? The most usual answer is, then how will the other countries be?

It has nothing to do with it, inflation is a strategy of the Bank of Mexico to keep the currency stable, all of this through monetary policy, that is, with the purpose of protecting the purchasing power of the peso, for which different measures, such as variations in interest rates, in State spending, and even changes in inflation levels, whether they lower or increase the levels of each indicator.

So high inflation isn’t bad? No, the vast majority of the most developed countries, such as the United States, the European Union and even the Netherlands, have high inflation rates that can exceed 18%, that is, 10 points above the Mexican price level and They have a successful economy.

This is possible given that an increase in prices encourages production, in turn more jobs are generated and even wages are raised, thus increasing our consumption, and it should be remembered that the greater the production, the greater the economic growth.

However, an increase in inflation, which is not monitored, may even generate a crisis; For example, if prices rise and the consumer has no money, it could actually lead to a decrease in their purchases, thus reducing sales and production. Therefore, the Bank of Mexico determines the appropriate levels of interest rates, to encourage the market.

This leads us to ensure that the interest rate is not bad either and despite the news from Banxico it has increased the interest rate to a historical figure of 9.25%, this represents that a higher interest rate encourages savings, which In turn, its purpose is to generate more resources for investment, and even represents a measure to withdraw money from circulation, in order to reduce prices, effectively inflation, since there is less money in circulation, the dynamics of the market reduces prices.

In turn, this increase in the interest rate encourages the purchase of bonds, cetes and other assets, generating profits for the pockets of savers, which leads us to ensure that high inflation and interest rates are not bad.

However, having low inflation is not bad either, since with low prices it can in turn guarantee greater production, given that the lower the price, the greater the quantity demanded, this situation can generate surpluses, in turn encouraging the international trade, and could be more competitive around prices. It is also very possible that there is more foreign capital wanting to invest in our country, given the low costs, generating greater production and, therefore, growth.

So, is inflation our friend or our enemy? This response will always depend on the strategies that the Bank of Mexico has to keep the economy stable, which have worked very well despite the international crisis that the economy is facing. The peso has gained purchasing power over the dollar and the euro, it is recognized as the most stable currency and we are not facing the crisis that everyone predicted due to the pandemic.

It would be worth changing the stereotypes of good or bad in the economy and begin to analyze the reason for the variations in our indicators.

Editor’s Note: Erendira Yaretni Mendoza Meza has a degree in Economics, a Master’s degree in Government and Regional Development from El Colegio del Estado de Hidalgo and a doctorate in Social Sciences from the Universidad Autónoma del Estado de Hidalgo. She is a professor at the highest house of studies of the entity. Follow her on and/or on . The views expressed in this column are solely those of the author.

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