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Wednesday, July 17, 2024 | Back issues
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Low-income families hit hardest by Mexico’s rising inflation

The lowest-earning households often find themselves spending more than half of their monthly income on food, which has seen some of the highest price hikes in recent years.

MEXICO CITY (CN) — As Americans start to glimpse the light at the end of the inflationary tunnel, the trend continues to rise in Mexico, and it’s hitting the lowest earners the hardest. 

While the annual inflation rate in January rose slightly to 7.91%, households earning an average of 3,313 pesos (US $177) per month are currently experiencing 10.2% inflation, according to a statistical analysis by the Mexican Institute for Competitiveness (IMCO). 

Citing data from Mexico’s national statistics institute Inegi, IMCO found that number greatly contrasts with the rate felt by higher-earning households. Those with monthly incomes averaging 11,122 pesos ($595) are seeing 8.82% inflation, while those bringing in $54,427 pesos ($2,910) are enjoying a rate lower than the national average at 7.68%.

This trend is primarily due to the distribution of people’s consumption patterns, according to Ana Gutiérrez, head of foreign trade and labor markets at IMCO. Mexico's lowest-earning households can end up spending more than half of their monthly income on food, which has seen the some of the highest price hikes both in Mexico and elsewhere in the world in recent years. 

“When half of their consumption is focused on food, and food has the highest inflation, then obviously the pressure on those households is higher than on the other end,” said Gutiérrez.

A third of the products that make up what is referred to in Mexico as the basic foods basket saw an annual inflation rate of over 19% in January. Topping the list were tomatoes at 54.1%, oranges at 39.1% and eggs at 26%. Others in this group were pastas for soups, oils and fats, and packaged bread, as well as hand soap.

The rise in egg prices is taking a significant toll on the lowest earners. The bottom 10% of wage earners are spending nearly 3% of their total incomes on eggs. Mexico’s federal consumer protection agency Thursday recommended people stop buying eggs until March, when prices are expected to go down.

Only three basic basket products saw drops in prices in the first month of 2023 compared to the year before. Limes got 47.9% cheaper, while onions and apples saw reductions of 36.5% and 0.5%, respectively.

Basic food products like tortillas, sugar, milk, rice, beans, beef and others continued to rise. 

On the other hand, products and services more commonly purchased by higher-earning households, such as telecommunications and educational services, saw prices drop in January.

Gutiérrez also blamed the federal government’s agricultural policies for stubborn food prices in Mexico. She pointed to, among other recent agricultural policies, a 50% export tariff on white corn imposed by President Andrés Manuel López Obrador in January with the stated goal of stabilizing prices.

The executive order was written and issued without consulting agricultural industry professionals and councils, Gutiérrez said.

“They didn’t see that we actually already have a surplus of white corn and trying to block exports from Mexico really didn’t do anything and created uncertainty for our commitments with trade,” she said, calling such measures “performative,” rather than effective.

Although food prices have begun to moderate in the United States, three factors have kept them rising in Mexico, according to Gabriela Siller, director of economic analysis at the financial firm Banco BASE. 

One is the recent minimum wage increase in Mexico, which began in January.

“Contractual salaries in private companies rose 11%, and we had not seen an annual rise of that magnitude since December 2000,” Siller said. This directly affects the price of services, which contributes to rising inflation. 

The federal government’s 3.4% fiscal deficit in 2022, which Mexico had not seen since 2015, has also played a role in this trend.

Inflation expectations round out the trio of reasons that Mexico is not seeing the same price relief as the United States. 

“In Mexico, people still remember the high inflation rates in the 1980s, so prices keep rising because there is an expectation that inflation is not going to stop,” she said. 

Such expectations were surely stoked by consumer price numbers from February of last year, when Mexico saw the highest inflation rate for that month in 22 years.

The country’s central bank Banxico Thursday raised the interest rate to a record 11%, and Siller expects to see another half point by the end of the year. 

The central bank appears confident that its strategy will work, stating in a press release announcing the hike that it expects both core inflation and consumer prices to fall to around 5% by the end of 2023. 

López Obrador expressed disapproval of the bank’s actions Friday, saying during his morning press conference that it “should concern itself with driving [economic] growth, not just controlling inflation.”

Banxico Deputy Governor Jonathan Heath responded in a series of tweets, saying that temporary hikes are necessary for controlling inflation and ultimately getting borrowing rates back down to where they can spur growth in the long run.

“The best contribution of monetary policy to economic growth is with an environment of price stability,” Heath said. 

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Categories / Economy, International

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