Mexicans have lived practically 20 consecutive months with inflation outside the target range of the Bank of Mexico and wonder if prices will fall back to previous levels.
For many, September brought a respite in inflation and there are some signs that prices may stop rising at the same rate. But will the prices of food, Coca-cola or bread return to the same levels of, say, 2020? Here some clues.
Why did food prices go up?
The rise in food prices is a concern for the world. Since the Russian invasion of Ukraine began, the prices of the main grains, but also of fertilizers, began to rise, because Ukraine is one of the main producers of grains such as wheat. To this must be added that there were droughts in several agricultural regions in the world.
The Food and Agriculture Organization of the United Nations (FAO) said on October 7 that its price index, which tracks the most traded food products globally, had an average of 136.3 points last month, compared to a revised 137.9 in August. This is good news, since this is the sixth consecutive month of decreases in this index.
But Gabriela Siller, Director of Economic Analysis at Grupo Financiero BASE, believes that the inflationary pressure on food and energy will continue as long as the war continues.
Added to this problem is that “the world’s economies are slowing down, some in Europe are already in recession, Mexico depends a lot on the United States and if this country does not enter a recession, it will have very low growth next year.”
Even so, there is some good news and some not so good to try to predict when the prices of the goods will drop.
Inflation in Mexico 2022
, as it did not increase at the same rate as in previous months. But why did this happen and how does it benefit everyone’s pocket? Will prices finally drop?
The first thing to know is that the inflation rate indicates the extent to which the prices of most products in the economy have increased. In this sense, the inflation data contains within it a sum of increases, but also decreases in the prices of goods and services.
In September, annual inflation reached an annual rate of 8.7%, the same level shown in August. What was the reason for this ‘brake’ on inflation during the national month?
Prices that fell in September
The Inegi data shows that while some products such as bread -including pan de muerto- and other foods continued to rise, others decreased.
Specifically, the services sector registered a fortnightly price decrease of 0.15% at the end of September. The services that fell the most, at a fortnightly rate, were the following.
Mobile telephony, -7.97%
Air transport, -7.78%
Package tourist services, -3.46%
Parcel, – 0.44%
If inflation stops, do prices go down like they were before?
One of the factors in the composition of prices, in addition to the costs associated with the manufacture of products, is the expectation of inflation. That is, how much companies expect prices to rise in general in a given time. In general, expectations in Mexico tend to be around 3%, but not in this last year and, therefore, there is no expectation that prices will fall sharply.
Prices, due to the nature of the market economy, tend to rise nominally over time. But the same happens with salaries, although in a generally slower way. In this way, people may or may not recover their consumption levels prior to crises such as the one caused by the covid-19 pandemic and inflationary trends such as those the world is experiencing today.
For this reason, it is normal for people to remember that “before the sabritas cost 2.50 pesos”, but they still continue to buy them today at the current price.
By the time inflation returns to ‘normal’ levels, the prices of most commodities are unlikely to fall back to previous nominal levels.
Some merchandise such as raw materials, however, tend to fluctuate more volatilely, the prices of fruits, vegetables, but also some minerals, can have significant drops depending on some factors.
A seasonal factor
In September there were various products and services that dropped in price, why did they do it? Will they be sustained at that level? Here are some keys:
“Most of these decreases are due to seasonal factors, so they do not necessarily imply a change in the downward trend for service prices,” says an analysis by Banco Base, referring to some services related to the low season of tourism. , for instance.
The ‘breather’ in September cannot be taken as an unequivocal sign that the inflation trend is changing. For this, several fortnights must be observed with sustained decreases and not attributable, precisely, to purely seasonal factors.
In addition, although there are products and services whose prices decreased in the last fortnight of September, many of them still remain well above the levels of the previous year.
Freight transport costs go down
One of the causes of inflation in imported goods was the rise in transport prices in supply chains. Almost 80% of world trade depends on sea freight, in 12-meter containers.
The long waits in the ports, to transport the merchandise, raised the costs of these freights. But to the extent that distribution chains have been restored, prices have been falling.
At its peak, the cost of such a transatlantic ocean freight from China to the United States was as much as $20,000, according to estimates by EES Shipping. Now, this service has already been reduced to levels of $4,000, in some cases.
This is good news, because it may cost less for producers and traders to move their goods and supplies.