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News > Mexico

0.25% Of Mexico’s Inflation Originates From Conflict in Ukraine

  • People with masks walk today through the streets of the historic center of Mexico City

    People with masks walk today through the streets of the historic center of Mexico City | Photo: EFE / Isaac Esquivel

Published 1 April 2022

The conflict in Ukraine causes 0.25 percent of Mexico's inflation, according to a study by the Laboratory of Analysis in Commerce, Economics and Business of the National Autonomous University of Mexico (UNAM) published on Friday.

"The inflationary effect of Ukraine only impacts 0.25 percent of inflation in Mexico. The price increase results from intermediaries of agricultural products and food, mainly retail chains," details the study of the academic laboratory.

General inflation stood at 7.29 percent, and annual inflation was 3.71 percent in the first two weeks of March.

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According to the study, gasoline station concessionaires, taking advantage of the increase in the international price of oil, increased the value of diesel and gasoline.

The conflict in Ukraine, after Russia's military operation in that country, "caused an increase in gasoline prices, which, from February 24 to March 24, increased 1.50 pesos (7.5 US cents) in magna gasoline (low octane) and 2.50 pesos (12.5 US cents) in premium gasoline (high octane)", according to the study center.

Among the energy products whose prices increased the most are LP domestic gas, with 4.05 percent, low octane gasoline, 0.98 percent, and high octane gasoline, 3.67 percent.

Although the government increased the gasoline subsidy from 80 to 100 percent, "dealers indiscriminately increased fuel price, mainly impacting agricultural products," analysts commented.

To contain inflation, Mexico's Central Bank decided to increase its interbank interest rate from the previous 6 percent to 6.50 percent.

However, UNAM economists predict that this increase in the cost of money "will not stop the escalation of prices, taking into consideration that traditionally, during Holy Week and Easter Week (April 10 to 24), prices increase, so the conflict in Ukraine and the vacations will put even more pressure on inflation for the second half of March and the month of April".

They also consider that the results of March, which has just ended, "will be affected by the increase in fertilizers resulting from the conflict in Ukraine, which will affect agricultural prices in April and May, being the months with the greatest drought, which also has an impact on the costs of agricultural products."

Due to this behavior, economists believe that the Federal Economic Competition Commission "is obliged to investigate competition in the agricultural, food, transportation and gas station concession markets."

Finally, they point out that "the presence of organized crime in the production, distribution and sale of products, mainly agricultural, has a 2.00 percent impact on inflation" by raising the cost of food.

Public Security authorities should "shield the main points of agricultural and manufacturing production" to stop the participation of organized crime from affecting prices.

The analysis concludes that agricultural activity is where crime has the most significant presence because "extortion has an impact on producer prices," the payment of which ultimately impacts inflation for the final consumer.

The UNAM economic laboratory estimates that the Mexican economy will only grow by 1.3 percent this year. 

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