EconomyPACIC, a short-term plan without a solution to structural...

PACIC, a short-term plan without a solution to structural failures

(Expansión) – On May 4, at the president’s morning conference, the Package Against Inflation and Scarcity (PACIC) was presented, which includes four main strategies.

They are properly: the production strategy, aimed at increasing the food supply and the gasoline subsidy; the distribution strategy, which revolves around not increasing transport rates (road and rail tolls) and strengthening the road safety strategy; the foreign trade strategy, with zero import tariffs for 21 of the 24 products of the basic basket and five strategic inputs and, finally; other measures, such as private participation in the PACIC ( ) and the commitment not to increase the prices of Telmex and Telcel services.

For this program to be considered successful, a containment should be observed in the evolution of the price level of the 24 essential products (basic basket Profeco) considered in the PACIC. To date, no significant containment has been observed in the evolution of the prices of these items. More generally, food inflation went from 13.72% in April 2022 -prior to the PACIC announcement- to 15.22% in the first week of July.

When talking about program evaluation, it is also important to consider a counterfactual scenario. In this case, the counterfactual scenario is configured through the following question: what would the observed inflation be in the absence of the PACIC? At the time of announcing the PACIC, the Ministry of Finance and Public Credit (SHCP) anticipated that without the stabilization of the price of gasoline from the IEPS and the additional stimuli, inflation in the first half of April and not 7.7%, as it turned out back then.

It seems to me of great importance to point out that this containment in inflation indicated by the SHCP is due to the direct impact -arithmetic- of the stabilization of the price of gasoline in the inflation component. It is clear that in the absence of these stimuli, inflation would be higher than what we have been observing, what is not clear is, on the one hand, whether these stimuli and the rest of the strategies in the PACIC have had a second-order impact – not direct- on observed inflation, specifically on food inflation and, on the other hand, if the PACIC in general is a cost-effective strategy.

Regarding the impact on food inflation, in addition to the previously mentioned increase in percentage points, the incidence of food on general inflation has also increased in the reference period.

As to whether PACIC is a cost-effective strategy, a much broader discussion is needed on what other strategies or programs could have been implemented to counteract the general increase in food prices, or to contain the drop in purchasing power, specifically that of lower-income households, where a greater proportion of disposable income is allocated to the consumption of the basic food basket.

In budgetary terms, the resources allocated to the PACIC are concentrated mainly on the gasoline subsidy, which, although it has an impact on observed general inflation, there is no evidence that it has an impact on food price containment.

In addition, the PACIC is configured as a short-term plan that does not offer solutions to structural flaws in the configuration of prices in the country’s markets, such as the link between organized crime and the food system or the presence of market power of companies. .

The Working Group on Violence and Food of the Latin American Food, Culture and Society Network increased links between organized crime and the food system, with practices such as extortion of specific food producers, collection of floor fees from merchants, displacement merchandise, control of specific points of sale, arbitrary fixing of food prices, among others.

Regarding the market power of companies, that is, their ability to set price levels higher than those that would exist in a competitive environment, I return to the findings of a study on the impact that market power has on the well-being of consumers. Mexican homes.

The study finds that Mexican households pay an average premium of 98.23% for the existence of market power, which represents a welfare loss in Mexican households of 15.7% of their income on average, with regressive effects, at reduce the budget of the poorest households by 30.9%.

Correcting these two structural flaws implies a much greater challenge, in budgetary and implementation terms, than the short-term decision to cap the price of gasoline from public resources, where it never hurts to remember that the subsidized gasoline to households of higher earnings. Could it be that the well-being of Mexicans always has to be subject to the short-term reputation of the current president?

Publisher’s note. (@AxelEduardoGG) is a researcher in Mexico, how are we doing? The opinions published in this column belong exclusively to the author.

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