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Cost Inflation

May 21, 2019

The economy is slowing down in most indicators. Investment is contracted, mainly domestic machinery components and non-residential construction.

The employment generated in the first four months falls from 456 thousand in 2018 to 300 thousand this year. Slightly higher than the 286 thousand in 2013.

In an economy in which slack is increasing, as Banco de México acknowledges, inflation remains stubborn at around 4% per year, despite the appreciation of the peso.

Certainly, the cause is not excess demand over supply capacity.

Among the specific factors that cause cost pressures are: salaries, which registered an advance of 6.7% in the average salary of members of the IMSS, increases in gasoline and LP gas, public transport, and a wide range of services.

At a structural level, we are concerned that the economy may register a drop in productivity.

Several factors may be affected by the new economic strategy and the political environment.

The advancement of productivity depends on investment, technology, innovation, the rule of law and the flexibility of markets.

A negative behavior of these variables could dilute the containment effects on prices of restrictive fiscal and monetary policies.

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