The purchasing power of Mexicans, in free fall due to inflation

There is no measure that can with the unstoppable increase in prices in Mexico. While at the beginning of the year the contractual salaries -which make up around 60% of the income of the workers formal – had a nominal increase of 6.7% in February (the highest so far in this administration), according to data from the Ministry of Labor and Social Welfare, which after the effect of the inflationresults in a loss in power purchasing of -1.34%.

The inflation, which in February reached 7.28%, continues to put pressure on the pockets of Mexican families and forces them to change their consumption habits. It is precisely the most popular foods in the country that hurt the most in consumer finances: chicken, lemon and meat, as well as fruits such as avocados have put purchasing power in a free fall.

Although the minimum wage in the country increased 22% at the beginning of 2022 and stood at 172.87 pesos a day (just over eight dollars), only 12% of workers earn this figure, according to the country’s National Minimum Wage Commission, while the average income for workers registered in the Mexican Social Security Institute was 466.75 pesos (about 22 dollars). “There are very few workers who earn the minimum, the real impact is seen in the deterioration of their diet,” says David Lozano, coordinator of the Center for Multidisciplinary Analysis of the Faculty of Economics at UNAM, in an interview. “Mexicans who find food more expensive will opt for products of lower quality, but cheaper”, indicates the economist.

The products of the basic basket are the first to see decreases. Gabriel Pérez del Peral, research professor at the School of Government and Economics at the Universidad Panamericana, indicates that families who earn between one and two minimum wages (60.7% of employees in the country) are the ones who suffer the most from this loss of power purchasing. “For example, vegetable oil, which is the basis of cooking in Mexico, has reached its highest level in the last eleven years,” she says in an interview.

According to the specialist, 80% of the preferred products and foods in Mexican cuisine are transported by land, so the increase in the price of hydrocarbons, as well as liquefied petroleum gas, have had a direct impact. on the inflation.

Losses that escape the policy

The efforts of the Mexican Government to render the income of the workers they are insufficient. From fiscal incentives to the increase in minimum and contractual wages in the country, they are useless if other types of measures are not taken. On March 24, the Board of Governors of the Bank of Mexico will announce its monetary policy announcement. “If (the central bank) does not raise the reference interest rate by at least 50 basis points, it will be reflected as tolerant to the inflation and it would accelerate the outflow of capital, which increases the devaluation of the currency,” says Pérez del Peral.

Additionally, the economic effects of the war between Russia and Ukraine aggravate the economic outlook for many countries, including Mexico in the medium term. “The problem of inflation it is not only about economic policy, the phenomena go beyond that and we could expect that in the coming months the inflation exceed 8%”, estimates David Lozano.

According to the head of the Ministry of Agriculture and Rural Development (Sader), Víctor Villalobos, the increase in temperatures and the drought would also pressure the increase in basic grains and agricultural inputs, which would further reduce the consumption power of Mexicans. “The increase in the price of supplies, derived in the first instance from the effects of the pandemic, can be accentuated by the geopolitical conflict in Eastern Europe, coupled with climatological imponderables such as drought, are issues that occupy both the Executive and the Legislative, since they represent increases in production costs for all the productive chains of the sector,” the official says.